Value investing in AI era and portfolio strategy (with Vonnie Quinn)

Matt McKennon discusses value investing principles in a high-multiple market, focusing on businesses with intrinsic asset value or market position. He sees AI opportunities in companies with billions of customers that can amortize costs (e.g., Meta, Google), but warns of a shakeout. He trims Google on strength to fund cheaper investments. He sees value in healthcare (e.g., Becton Dickinson with 60% market share in catheters/syringes, trading at ~12x earnings). He trimmed gold on strength to fund out-of-favor equities, noting gold has returned to 55-year averages vs. treasuries. Portfolio holds ~6% cash and ~6% gold as ballast.

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First Eagle Investments 7.8
Asset Manager $100.00B
Matt McKennon 8.5

Value investing in AI era and portfolio strategy (with Vonnie Quinn)

dxy

Dollar isn't firming up as much as you might expect

metals

Gold has returned to its 55-year averages relative to treasuries and is close to its 50-year average relative to equities. We trimmed a little gold on pockets of strength.

ndx

McKennon sees AI opportunities in companies with billions of customers (Meta, Google) that can amortize costs, but warns of a shakeout. He trims Google on strength, implying selective optimism. The overall tone suggests cautious upward bias for tech, but with selectivity and risk of shakeout.

wti

Oil prices rising on geopolitical uncertainty and no Iran deal; context of broader discussion suggests upward pressure continues.

yields

Long end of gilt underperforming... market prices significant rate hikes for UK

8/22/2025 9:13:40 PM	medium term cautious up	21 days later	-5.64%	-2.82%

Asks what value investing means today, given the S&P 500 at 25x earnings.

Vonnie Quinn
Matt McKennon

Value investing requires focusing on businesses with intrinsic value in their assets (scarce real assets or market positions of 40-60% share) and ability to generate cash flows. The valuation question is whether you can buy that business with reasonable arithmetic: what is the free cash flow yield and the rate of intrinsic value growth over time.

It's not just paying 10x PE and hoping to solve for 12x.
Asks about the AI trade, massive spending, and whether earnings pay for that spending.

Vonnie Quinn
Matt McKennon

Approach to AI is eclectic. Focused on companies with billions of customers that benefit from AI (e.g., Meta for ad targeting, Google for search). If you can amortize development costs across billions of customers, that's a sturdy starting point. Some LLMs may not be needed (like railroads with too many tracks), so there will be a shakeout long term.
Asks about Alphabet (Google) being a top holding and about to overtake Nvidia as most valuable company—time to trim?

Vonnie Quinn
Matt McKennon

Built Google position in 2022 sell-off when interest rates rose and people exited tech, originally built years earlier when there were concerns about traffic acquisition costs. The stock has re-rated substantially. Episodically at these levels, they trim Google to fund cheaper investments in the portfolio.

Google trades at a multiple of revenues, less free cash flow because they are investing heavily.
Asks which industries are beaten down and overlooked because everyone is all-in on AI.

Vonnie Quinn
Matt McKennon

Healthcare is one example, out of favor for 12+ months due to government being a big customer and worries about a squeeze. But not all healthcare is equal. Example: Becton Dickinson has ~60% market share in catheters and syringes, essential products. As medications shift to biologicals (complex, often self-administered, high price points), Becton Dickinson has room for growth over 10-20 years, trades at ~12x earnings, and buys back its own stock.
Asks about gold—whether it's time to trim now that the war has happened and there may be light at the end of the tunnel.

Vonnie Quinn
Matt McKennon

Owned gold as a potential hedge. Gold has returned to its 55-year averages relative to the level of treasuries outstanding and is close to its 50-year average relative to equities. It recovered from a depleted level when people weren't worried about fiscal sustainability. They trimmed a little gold on pockets of strength to fund investments in out-of-favor equities.

If they had done nothing, gold would have gone from 15% to 20%+ of the portfolio. They focus on not letting sector exposures become outsized.
Asks how much cash they hold to be nimble in case of a major selloff.

Vonnie Quinn
Matt McKennon

They have just under 6% cash in portfolios. Combined with ~6% gold, they have ballast to deploy if market conditions become less frothy. Notes Warren Buffett is sitting on a lot of cash, not feeling the need to put it to work in this frothy environment where risk aversion is low, credit spreads are back to 2007 levels, and equity multiples are high.

Earnings expectations assume margins will make new peaks.

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