This interview argues that traditional value investing (buying statistically cheap stocks) is dead, but the core principle of buying good businesses below their future cash flow value is eternal. The author sees the biggest opportunity in waiting for human overreactions rather than daily stock picking. Key holdings: Disney (turned bullish after its direct-to-consumer pivot, as ESPN's profit share dropped from 65% to 20%); Match Group (a buy after Facebook Dating caused a 22% drop, because Facebook's real motive is user retention, not dating); and cable companies (mis-priced as 'cord-cutting' victims, but they are really broadband businesses with rising ROIC even if video disappears).
At a Glance Anonymous fund manager "Modest Proposal" discussed on the Invest Like the Best podcast that value investing is dead, but long-term value still exists. He noted that active investors face difficulties in the current market, where overreactions in the media and retail sectors lead to mispr
Modest Proposal (a fund manager anonymously managing large-scale private capital) discusses with Patrick O'Shaughnessy the evolution of value investing, opportunities from market overreactions, and thematic investing. The most weighty judgment in the entire episode: value investing (buying cheap stocks) is dead, but long-term value (buying discounted future cash flows) endures forever; the biggest opportunity in the current market comes from waiting for overreactions driven by human behavior, not from day-to-day stock picking.
Modest Proposal argues that traditional value investing (buying statistically cheap stocks) has become extremely difficult, but the core principle of "buying at a price below the present value of future cash flows" remains valid.
Modest Proposal argues that the media industry is undergoing structural divergence, with some companies excessively penalized by the "linear TV decline" narrative, even though their future businesses have partially decoupled from linear TV.
1. Content companies tied to linear TV (pure aggregators, rerun programming) — facing a difficult outlook
2. Companies with original content (Discovery, scripted content) — may transition, but the direct-to-consumer economic model is worse (shifting from $3 per 100 million people to $15 per 15 million people)
3. Live sports/news (Fox, Comcast, Disney) — those controlling sports rights have a better outlook
4. Distributors: Satellite TV has a "terminal value of zero"; cable TV companies are essentially "broadband-first" businesses, wrongly swept up in the "cord-cutting" panic
Modest Proposal argues that the pure e-commerce model has been broken by the "law of diminishing returns" on customer acquisition costs (CAC), and the future winners will be "retailers" that integrate online and offline channels (rather than pure e-commerce or pure brick-and-mortar players).
Modest Proposal argues that while FANG (Facebook, Amazon, Netflix, Google) are massive in scale, their offensives in niche areas often fail due to a lack of focus and impure motives, creating investment opportunities for dedicated niche leaders.
1. "Why" Matters More Than "Whether": Large companies enter new fields primarily to serve their core missions (e.g., Amazon's Prime ecosystem, Facebook's retention of younger users), rather than simply to capture profit pools. "They won't say, 'Let's set up a Me Too service.'"
2. The Power of Focus: Keith Rabois (a member of the PayPal Mafia) argues—"Small and focused always wins, because for them, every day is a matter of life and death. For large companies, it's just one of many projects."
Modest Proposal argues that capital allocation (especially buybacks) is one of management’s most critical responsibilities, yet most companies execute it poorly; buybacks themselves are not the problem — the issue lies in timing and motivation.
Modest Proposal argues that active management is facing a "skill paradox"—the smartest and most diligent individuals are all competing, leading to a decline in both the magnitude and persistence of excess returns; the future winners will be those who can "sit and wait."
| Position | Guest Stance | Key Data |
|---|---|---|
| Disney | Shifted from long-term bearish to watchful (bullish on owned IP direct-to-consumer) | ESPN dropped from 65% of segment operating profit to ~20%; linear TV business is "dying" |
| Netflix | Neutral to cautious ("No-Fanger") | Market pricing implies 250-350 million global users; Modest Proposal estimates 50 million users, 30% margin yields ~11% IRR |
| Amazon | Neutral to cautious ("No-Fanger"), but notes AWS's nonlinear potential | CapEx $25 billion; retail profits mainly from third-party marketplace |
| Neutral to cautious ("No-Fanger"), flags risk of younger user attrition | 18-30 age group usage down 25-30%; Instagram approaching 1 billion users | |
| Neutral to cautious ("No-Fanger"), notes risk of search ads being replaced by AI | — | |
| Match Group | Bullish (22% price drop after Facebook entry is a buying opportunity) | Stock down 22%; Modest Proposal argues Facebook's motive is solving its own user retention issues |
| Shutterfly | Bullish (stock doubled after Amazon entry) | Stock "more than doubled" after Amazon entered |
| Grubhub | Bullish (undervalued amid competitive pressure) | — |
| Expedia | Early-stage investment case (bought in 2011) | CAC accounts for 40-50% of revenue |
| Booking.com (Priceline) | Industry leader benefiting from scale effects | — |
| Costco | Positive assessment (excellent business model) | Subscription model; 10-15% markup |
| TJ Maxx | Positive assessment (sourcing capability) | "Treasure hunt" experience cannot be replicated online |
| Walmart | Positive assessment (supply chain) | — |
| Cable companies (Comcast, etc.) | Bullish (overly punished by "cord-cutting" narrative) | Essentially "broadband-first" businesses; ROIC actually higher after video business disappears |
| Satellite TV (Dish, etc.) | Bearish | "Terminal value is zero" |
| Alibaba | Neutral (difficult to expand in the US) | Attempted US e-commerce but failed |
| Tencent | Neutral (globalizing through gaming) | — |
1. "Value investing is dead, but long-term value endures" (Modest Proposal) — Traditional value (buying statistically cheap stocks) has been rendered ineffective by excessive research and systematic arbitrage; however, "buying at a price below the present value of future cash flows" remains eternally valid. Rationale: After 1998–2002, value investing was mythologized, massive capital flooded in, and the factor was arbitraged away.
2. "Customer acquisition costs follow the law of diminishing returns" (Modest Proposal) — The first batch of users is the cheapest (product-market fit), but once revenue reaches $50 million–$150 million, CAC surges, making it "nearly impossible for a pure e-commerce company to be independently profitable." Rationale: In the online travel industry, CAC accounts for 40–50% of revenue; e-commerce sells commoditized goods (gross margin ~30%).
3. "Small and focused always wins" (Modest Proposal, citing Keith Rabois) — A niche leader wakes up every day with only one thing to do (serve its customers), while large companies have countless objectives. Rationale: Match vs. Facebook Dating (Match shares fell 22% then rebounded); Shutterfly vs. Amazon (shares doubled); Grubhub vs. Amazon/Uber Eats.
4. "FANG's offensive moves are usually not about capturing profit pools, but about serving their own core mission" (Modest Proposal) — Judgment framework: ask "why" rather than "whether they can." Rationale: Facebook entered dating to address young user churn (time spent fell 25–30%); Amazon entered photo books to support the Prime ecosystem.
5. "Cable companies are essentially broadband-first businesses, wrongly caught up in cord-cutting panic" (Modest Proposal) — Even if the video business disappears, these companies' ROIC would actually be higher (lower capex, higher margins). Rationale: The market linearly extrapolates occupancy from 96% to 94% to 92% to 90%, but in 2009, NOI for Class A malls did not turn negative.
6. "Buybacks are not the problem; the problem is timing and motivation" (Modest Proposal) — Principle: buy back when the stock is undervalued; otherwise, don't. "Buying back to offset dilution is the thing that drives me craziest." Rationale: Issuing shares and repurchasing shares are two independent actions; R&D and capex have not declined due to buybacks.
7. "The future of active management is the art of waiting" (Modest Proposal) — Market efficiency is largely correct; day-to-day stock picking cannot systematically outperform. The right model: hold an index most of the time, and only swing big when a "fat pitch" appears. Rationale: The magnitude and persistence of excess returns are both declining (the skill paradox); behaviorally, it is extremely difficult (drowning in data every day).
8. "99% of ICOs are scams, but among them may lie something that changes the future" (Modest Proposal) — Analogy to the internet bubble: 70% of the "dumb ideas" in the book F'd Companies were later reborn in new forms, worth billions of dollars. Rationale: Bitcoin has a special use case as a store of value; building blocks like Ethereum are worth watching.