Horizon Kinetics Holding Corporation (HKHC) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining us on this call. My name is Mark Herndon, Chief Financial Officer of Horizon Kinetics. We are pleased you could join us for our first quarterly results call that will cover our results for the 3 and 9 months ended September 30, 2024. But first, a reminder that today's presentation may include forward-looking statements. Reliance on forward-looking statements involve certain risks and uncertainties, including, but not limited to, uncertainty about the future security valuations or our performance. During the course of today's call, words such as expect, anticipate, believe and intend may be used in our discussion of our goals or events in the future. Management cannot provide any assurance that future results will be described in our forward-looking statements. Furthermore, statements made on this call apply as of today. The information on this call should not be construed as a recommendation to purchase or sell any particular security or investment fund. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will be profitable or that future investment decisions will be profitable or will equal or exceed past performance of these investments. We encourage you to read our filings with the SEC on our Form 10-Q as well as recent Form 8-Ks, which describe in detail the risks and uncertainties associated with managing our business. The company does not assume any obligation to update any forward-looking statements made today. Our filings can also be found at the OTC Markets website and our press releases or other information is at our corporate website at hkholdingco.com. Today's discussion will be led by Murray Stahl, Horizon Kinetics' Chairman and Chief Executive Officer. I will also be available to answer applicable questions and we'll moderate the questions. [Operator Instructions] So with that, I will turn it over to Mr. Stahl for his opening remarks, and we'll look forward to answering your questions soon.

Okay. Thank you, Mark, and thank you, everybody, for joining us. So as you know, this is the first Horizon Kinetics call in its publicly traded format. So what we propose to do today is for some of you, this may be your first experience with Horizon Kinetics. So we're going to give you a little bit of history and a little bit of background how we got here. and a little bit about our general business strategy. Then Mark, I will turn it over to him. He'll review the financial results, especially there are some highlights to help you interpret our financial documents. Then I'll get back online. I'll go a little more in depth on our business strategy and some interesting initiatives that we are undertaking. And then we'll answer questions. Now when we answer questions, what I propose to do is we're going to answer every question that we get. So if you are wondering about something, don't hesitate to ask it. Furthermore, if it doesn't -- if a question doesn't occur to you in this format and later on after the calls conclude, you want to know something, don't hesitate to contact us, and we'll do our best to get you an answer. So the main thing is we're establishing our background and our philosophy is as much transparency as we can legally give you. So with that, the history. So this in years, this is our 30th anniversary. And I say it's our 30th anniversary, if I'm not mistaken, I believe the original Horizon Asset Management was established. I may be a day off, but I don't think I am, on November 14, 1994. So this may well be -- I hope I'm not a day off. This may well be our 30th birthday party, so to speak. So originally, it was Horizon Asset Management. Horizon Asset Management, the Kinetics part of it was still 2 years in the future. It was basically formed to serve the high net worth individual market with long-term focus and very tax-sensitive investment planning. So individual investors as opposed to institutional investors are taxable investors, and that forms this very day, an important part of our investment philosophy. We're a value-oriented firm. And we have low turnover. So low is our turnover that if you look at our various funds, and these are all audited numbers, you'll probably be astonished at how low our turnover is, people frequently are, but that is indeed our turnover. There's a lot of philosophy behind it. And if you ask some questions, we can go into more detail. Kinetics was started in 1996. 2 years later, Kinetics was designed to serve the mutual fund market. The first Kinetics fund was the Internet fund. And the Internet fund still exists today, as you can see from our mutual funds website. And I dare say it has, I think, a very good track record. So it's been around for a long time. It was also the first of the Internet funds. So for the first half of our existence as a firm, it was really 2 firms that ran in parallel. There was a Horizon Asset Management, there was a Kinetics Asset Management. The dividing line more or less was Kinetics was funds and Horizon was individual accounts, although we didn't always follow that format. Specifically, it followed more or less those lines. And about halfway through our life span, it just made sense to merge the companies. So we had common employees. We had common investment strategies. We had common research. We had common ownership. So you put the companies together and now Horizon Kinetics. That was the last -- the history of that was the last 15 years. We probably would never become a publicly traded company were it not for the unfortunate event that one of our founding shareholders who worked in operations, our Operations Director for many years, died and it became necessary to attend the estate. And the best way to attend the estate is to get a public valuation on the shares, which is why it's a publicly traded company. The -- the manner in which it was brought public was a reverse merger with a company known as Scott's Liquid Gold. And in order to do that, we had to basically increase the infrastructure to accommodate all the reporting requirements of a publicly traded organization as opposed to a private organization. So our history until very recently is a private company. And when you look at the financial statements, you'll see a number of transactions that are really designed to transition this firm from its private context to its publicly traded context. Another point or 2 about our business philosophy and how we do things is the key driver of profitability, unlike other publicly traded fund management companies is not to maximize the funds under management in terms of raising more money or to phrase it alternatively, we're not so much interested in raising money as we're interested in making money. So we are now over $9 billion of assets under management, we didn't raise $9 billion. the fund, we raised some less or some. The funds appreciated to a level of over $9 billion. And that's a salient distinction. A lot of our clients are still with us today. So I think we have not just low turnover in terms of the portfolio strategy, I think we have low turnover in terms of the client base as well. And that gives you an idea in general terms of what we're like. We also have some different business strategies. So one further point I'll make before I go and we go into the financials, which is the financial markets are probably more concentrated than any time in history. So a handful of large capitalization stocks forms an historically a normal or abnormal portion of the S&P 500. And government securities worldwide, not just the United States Treasury securities, but government borrowing worldwide is probably the biggest asset class there is. And that's not necessarily typical of what happened in the world historically. It's not typical of the historical distribution of wealth. Historical distribution of wealth was more focused on tangible or hard assets. And some would argue, I would be one of those that we may return to that one day. But in any event, our new product development and things we do are more at the fringes of the asset management business rather than concentrating among the largest asset classes. Therefore, if we're going to do that, and that's where our expertise is, it logically follows that we're going to raise money proportionate to the liquidity of the ideas we have. So we're usually not going to have brilliant ideas in the most liquid securities is theoretically possible, but it's not likely to happen. And therefore, we're not trying to raise hundreds of billions of dollars to be managed because the ideas we have wouldn't accommodate that sum. So with that, now you have an idea of our orientation. I'm going to turn it over to Mark, and I'll say one thing about Mark. He put these financial statements together. He also did a lot more than that. He brought us from the publicly -- from the private -- the private [ mill ] year to the public [ mill ] year, it's a lot of work and also played a role in making the reverse merger actually happen, actually a very important role. So he's done a fabulous job. So Mark, why don't you review the financials, the highlights, and then you can turn it over to me. I'll do a little more on the business part of it.

Okay. We'll do. I appreciate those comments. So the highlights for the quarter, I'm not going to belabor or read sort of specific amounts, but I'll reiterate the point that 2024 was a transitional year for the company going from private to public. A couple of events stand out to me. Obviously, the merger with Scott's Liquid Gold, which if you're looking at the financial statements, had the impact of adding some goodwill and intangibles, but primarily, it's really the equity structure of the company now. Second of all, there was a transition on a taxable to a taxable basis. The company went from a pass-through LLC entity to a C-corp, which resulted to a fairly dramatic charge this quarter that you'll see down in the tax line. That's a large noncash deferred tax charge. So it's a complicated area, but it really relates to the unrealized gains that were embedded in the company over a long period of time. I'll also add the company's results can tend to be volatile. If you're looking at the bottom line, the company reported a loss for the quarter, which was driven significantly by that tax charge I just mentioned. But we had earnings for the year-to-date period, which was driven primarily by unrealized gains in our investment portfolios, right? The investment portfolio, our holdings in the proprietary funds and of course, some level of digital assets. In terms of the business this year, Horizon benefited from asset growth that is held, again, not only in the investments that it holds, but in its client accounts because as our -- the assets that our client accounts grow, it ultimately drives revenues based on the asset management fees. where you see the biggest impact on our financial statements is the -- again, the variability that you'll see in the fair value changes, which are down in the bottom in that other income expense line. And for the year-to-date period, you'll see fairly large increases for our investment portfolio, which is dominated by a company called TPL, which I'm sure will come up later, our prop funds as well as the digital assets. I would also mention a little bit buried within the 10-Q is an important disclosure about incentive fees. And we already have at least one question over that we'll get to. But incentive fees are something that are determined at the end of the year based on the performance of the funds and if they're meeting return thresholds. And currently, the unearned incentive fee, right? So as of September 30, what the fee would be if the year was to end at that point in time is approximately $23.3 million. And that fee could go up or down by the end of the year, but we do expect that we'll have some realization of that amount, a higher or lower amount based on how assets perform over the next couple of months. And that will be a significant event for the end of the year. And then lastly, just turning to the balance sheet. As the company has grown over the years. It's in a fairly strong liquidity position with no debt, roughly $18 million of cash at quarter end and a large investment portfolio. So I like where we're sitting from that perspective. In terms of the other thing I would point out, if you're thinking about the company in terms of cash earnings or something similar to a measure like that, I would focus your attention largely on the operating income line, right? That's above all of the other income, which includes the unrealized gains and losses on securities. It's above taxes, which include a variety of non -- at least immediately noncash events with deferred tax charges. So the operating line item is -- it's not exactly cash income, but it's pretty close if you're looking for that. And that's a key determinant to what will ultimately become a quarterly dividend. So the Board declared a $0.053 dividend this quarter. And you'll see that, that dividend will -- is expected to fluctuate quarter-to-quarter to the extent it declared based on the performance of the company. And you may want to comment on that a little further. Maybe that could be our first question. I'm sure people are interested in the dividend prospects of the company and how we -- how you think about that.

Okay. Have you concluded your accounting remarks, Mark?

Yes.

Okay. Thanks, Mark, for that. So let's start with that. The basic policy we're going to have is we're going to pay out 70% of operating income and we're going to pay out the better part of our performance fees should we get them. So unlike a typical corporation that will set a dividend to be very low so that the dividend is beneath the range of fluctuation, we're not doing that. So we just want to be transparent and honest. Dividend could go up or dividend could go down, but we're likely to have a dividend or we -- historically, we have had a dividend as far back as I can remember. So I suspect that we're going to continue that policy. And if we're so fortunate as to have a performance fee, which might be very substantial in the fourth quarter, there'll be a very substantial final year dividend. I think that's reasonable. Our basic policy is we keep a little bit of the money for investment purposes, and that's next point. The investment portfolio -- investment portfolio other than rounding error is for 2 things really is, one, we're buying the same investments as the clients have, maybe a little rounding error in that, the same investments. And secondly, to the extent we have new strategies, we need some money to seed them. So we're not looking to take money out of the existing strategies unless there was something wrong with them. So take money out of existing strategies and pay the tax just to seed something else seems to me rather counterproductive. So we have this. We have a little bit of money, and we actually have some interesting ideas on things we are going to seed in the next couple of months. One example of something we seeded historically that I think was a great success was cryptocurrency. So cryptocurrency is in several dimensions. One dimension is bears the management are buying cryptocurrency, and that's pretty simple. And there are other people who do that. And we also mine cryptocurrencies. Mine cryptocurrency, mining is actually a very misleading term because what it really is, is you are validating blockchain transactions on a cryptocurrency like Bitcoin. And in return for validation of transactions, which means you're checking the transactions, you get something called the block reward. And over time, if you accumulate a lot of Bitcoin and Bitcoin appreciates as it has, it forms a very important part of the capital base. Mining is really a work in progress for a lot of people because the business has actually changed over the years. And we've done, at least in my humble opinion, we've done a number of rather intriguing things in the world of mining cryptocurrency. We're responsible at Horizon for day-to-day operations of the cryptocurrency mining operations to 2 separate companies. One is called Consensus Mining. We own some shares of Consensus Mining. It's a private company. And with any luck, that will come public in 3 months or so I'm reliably informed. And the second thing is we, at Horizon Kinetics manage the mining operations of a publicly traded but not a reporting company known as Winland, which trades under the symbol WELX. And our sister company, FRMO owns something around or controls the vote of something around 41% of those shares. But the day-to-day operating in a mining equipment and the business is done by Horizon. And that's strategically really, really important. We have views about how mining should be done. I'm not going to go into them in any detail today other than to say that when Consensus Mining is publicly traded, and we're going to do a lot more disclosure about that and a lot more disclosure about Winland, I think everybody will be -- or hope everybody will be rather impressed with what we're doing. So I can't go into too much detail. But there's a lot of effort being put into that. And that's an example of the things that we're doing. So remember, we're trying to develop new products in either new asset classes or the fringes of the existing asset classes. The idea is we really don't want to be part of the mass. We're a research-oriented company. We're research-driven, and we're trying to find pockets of opportunity. Our money raising is going to be proportional to the pockets of opportunity that we have. And the last -- is it 15 or is it -- maybe it's 17 years. Last 17 years has seen in major capital markets a reverse trend. It's seen the concentration in a handful of assets within 2 big asset classes, equity and fixed income in a handful of securities. And that's not normal. That's decidedly abnormal. And one day, that's going to change. From the period of time from, I would say, the end of the second World War until 2007, the real money was made in capital markets at the fringes. And I would say from June 2007 to maybe a year ago or something like that, one can debate the time, the real money was made in the centerpiece of capital markets. My own personal theory, and it's nothing other than a personal theory is that period of abnormality has ended, and we should, as a firm, find a lot of opportunity in the way capital markets are functioning lately. So with that, I know I didn't go into too much detail, but I gave you a sense of what Horizon is all about. And I'd be very interested in hearing your questions and feel free to ask whatever you'd like to ask, and we'll be delighted to address anything. So maybe if you have some questions, Mark, I'd be delighted to take them.

Yes. Not much has come in. [Operator Instructions] One of them that has come in, Maria is, do you believe the current -- given the current price of Bitcoin, do you believe that, that price follows hash rate? What, if any, facts should we pay the most attention to of the 3-legged stool of hash rate, halving and machine values to determine whether Bitcoin is overvalued or undervalued?

Okay. Those are the 3 vectors. So there is machine prices, there is -- well, I would say the device prices because they're not really machines, they are devices. I would certainly say the halving and that functions in an exponentially smooth monotonic way. We're about 3.5 years away from next halving. And hash rate, another way of looking at, it's the same number basically is what's called the difficulty coefficient. Difficulty coefficient is released every 2 weeks or it's recalculated every 2 weeks. The hash rate is recalculated every several minutes. So let me just tell you the limitations of both calculations. The good thing about hash rate is you're getting a fresh hash rate every several minutes. The bad thing about hash rate is -- well, 2 bad things. Number one, it's an estimate. So when you see this hash rate, you'll be tempted to think that somehow every device that's mining Bitcoin is connected, and we have a precise hash rate. We do not have a precise hash rate. So that's not a precise number because that number is an estimate based on the most recently available block solution times. So if blocks are being solved, let's say, every 10 minutes and then a few blocks are solved and they're solved every 8 minutes, the algorithm will calculate the hash rate went up. It may not be true that the hash rate went up. It may just mean that the randomness of mining is such that we got some very quick solutions. It doesn't mean that more devices were added to the system. Therefore, there's more hash rate. There's a certain amount of randomness to it. Basically, the devices are trying to guess a number. It's very large, but it's a number. It can go the other way and the block solution times may lengthen. So instead of 10 minutes, it might be 12 minutes, it might even be 14 minutes. If that happens, the algorithm will presume that there are less devices operating, and that might be true. It just may be the randomness of it that you're trying to guess numbers, it takes longer to guess. So the -- if you're following moment to moment, the hash rate, you might be very deceived. The more stable number and a number that is calculated is after 2 weeks lapse, we have this number called difficulty. It's really difficulty coefficient. That is a number. Right now, it's something like -- read some round numbers, 103 trillion. What does that mean? That means you're taking a number of possible solutions in the initial mining problem, which is 2 to 256 possible solutions, and you're multiplying that number by something like 103 trillion to get some staggering number of possibilities. The reason you have a staggering number of possibilities make it harder and harder to solve the mining problem to get a block solution. The harder it to solve the mining problem, the more a Bitcoin is worth. That number is a much more precisely calculated number because it's based upon the block solution times over a 2-week period of time, and the randomness has at that period of time where so could be argued, has drained from the system. So that's the way it works. So I would tell you, you want to look at hash rate, but a substitute for hash rate would be and a good substitute for hash rate would be this difficulty coefficient, just recalculate every 2 weeks. So that's how I would answer that question.

Okay. Flipping to maybe a different investment. We have a question that talks about the value of TPL and where it's at. And while I would not expect you to address its specific spot value, maybe for those individuals that aren't familiar with the history of the company, you could talk for a second about the relationship with TPL and that we obviously hold a number of shares of TPL at Horizon Kinetics and you serve on the Board. So just in general, I'll call it the relationship there and why that's a significant holding for us.

Okay. Well, to begin with, Texas Pacific Land, believe it or not, was the first research report we ever wrote at Horizon 30 years ago. So -- and if you get a copy of it, it's actually, I would say, a more interesting report today than it was 3 decades ago. So let me just give you a general framework for valuation without going into too much detail. So one of the faculties of this type of company, TPL, which very few companies have is that you'll see from its own SEC filings, there is very, very little in the way of capital expenditure. So ignoring the capital expenditure, which I would argue was de minimis, the earnings more or less allowing for that rounding error belong to the owners. So in principle, in one form or another, those earnings can be returned to the shareholders. You could pay a dividend, you could buy back stock, you could have some combination. as simplistic as that is, believe it or not, most companies don't have that faculty. So in the case of most companies, if the earnings are x, you can create -- you can calculate a price earnings ratio, but it's a little bit misleading at 99% of the companies. The reason it's misleading is because those earnings legally belong to the shareholders, they just can't be distributed to the shareholders. Why can't they be distributed to shareholders? Because a goodly part of the earnings need to be reinvested in the company because the business is constantly changing. So for example, for a technology company, to be easily understood. A technology company has to reinvent itself every several years, has to retool, has to research and development, has to buy new equipment and so on and so forth. So the earnings are x, but a very small portion of is available. So if you -- now for most companies, that lack of availability is constant throughout companies. So the P/E ratio metric was developed. And it's probably not such a bad way of comparing companies. But if you're going to compare companies that have this ability to distribute the best part of earnings and those companies that do not and have this reinvestment requirement, they're not commensurable. So if you want to compare those companies to one of the fortunate few that have the ability to distribute virtually everything, then you have to talk about distributable earnings and a P/E based on distributable earnings rather than a P/E based on mere earnings. And if you do it that way, I think you'll discover some very interesting faculties about TPL. Another thing is just in the title. It's Texas Pacific Land. So compare that to virtually any other business. There are products and they come and go. They get obsoleted, they encounter competition. This is land. There's also a fairly substantial water business. Land is forever, water is forever. There are very few products in the world that are forever. Or put it this way, if you went to a Wall Street Journal and looked at Dow Jones Industrial average on this day in 1924 and looked at the companies that were in it, first of all, they're radically different companies. And some of the companies don't even exist anymore. And a few that do exist, -- it's just different. They're completely different companies. And there's no comparison of it. That doesn't happen. Now if you went through Wall Street Journal, believe it or not, Texas Pacific Land was traded in 1924 and you were to read the annual report of 1924, the business has improved since 1924, but it's not radically different or put it this way. The products and such as they are, have really not changed in 100 years. And that longevity, which we expressed in our own literature at Horizon is the product life cycle. I don't think you can find a product life cycle that's longer or at least maybe you can, but I haven't been able to find it. So that's the way I would address it. Sorry for the generalities, but it's the best way to do it given my position in the company. So that's the way I would address it.

Okay. And I think I may force you to some more generalities. Another question on TPL has come in. And you may have largely addressed it already, but I'll add a little nuance to it. I'm going to paraphrase the question a bit. The person is asking when we hold a company such as TPL and they have built in a presumption that the price is driven up with the inflow of index funds, how do you understand -- or how do you think about the underlying value separate from that when you consider the impact of index funds on the trading?

Okay. The impact of index funds. So the first thing to understand about the impact of index funds, certainly, index funds have an impact. The impact of the index fund is on 1 day. So other words, company X is at index Y on a given day. and the index needs to buy the appropriate number of shares. So that can have a positive impact upon the price. But there is a concomitant effect that somewhat balances it. So yes, you go into an index. So the market capitalization obviously increases. When the market capitalization increases, there are other investors that own that stock, and they are no longer permitted to own a company that has a market capitalization above a certain level. So we have the luxury that we don't permit ourselves to be restricted that way, but most investors are restricted. So quite plausibly, TPL was owned by x number of investment management firms that invested in small capitalization stocks. And there's a number that those firms can't own it because it's exceeded their market capitalization tolerance limits. It's outside of their mandate, and they'll be forced to sell it. So I don't think it's reasonable for people to cite only the index calculation and the index buying of shares and not the other side of the equation that some people will be just as forcibly compelled to sell shares as the S&P 400 Index is compelled to buy shares. So that's something that's really important to consider. It's not a one-dimensional problem. It's a multidimensional problem. Another thing that impacts indexes is not all indexes are calculated on the market capitalization weighted basis. So for example, you'll see in the S&P 500 Energy Index ETF, ticker symbol is XOP, I believe, you'll see prominently displayed Texas Pacific. There's a position there. It's been in there for a while. But it's within certain tolerance limits. It's not exactly an equally weighted index, but it tends to be an equally index. So when the weighting of Texas Pacific or any other company for that matter, rises above 2.5%, there's a monthly rebalancing and the index is required to sell shares to bring it back to a 2.5% weighting. So just understand that if you're trying to follow the index dynamics, it's not a one vector problem. it's a multi-vector problem. Some of the vectors lead to appreciation, other vectors lead to depreciation. These things happen on only 1 day. So there's a lot more going on other than indexation. And I wouldn't say that indexation is the primary variant. So I hope that answers the question.

Next, I want to turn to a similar topic, another position that has come on board this year, and that is LandBridge. And the question is very simply to -- I appreciate understanding your view on LandBridge and its value over the long term.

Okay. Well, LandBridge has spoken for itself in a variety of venues. So I'll do my best to paraphrase what LandBridge has said. So because of the rise of cloud computing, high-performance computing, artificial intelligence, data centers, et cetera, in many regions of the United States America, we're running out of electric capacity, electricity generation capacity to actually service data centers. That's a big problem. But a much bigger problem is the new equipment, which powers data centers, generates enormous quantities of heat that requires water. So the municipal areas of most countries in the nation literally don't have the water main capacity. They also don't have the water. They have a cool of data centers. So Landbridge has purchased land in the Delaware Basin or the larger Permian Basin of West Texas. with a view to putting data centers on the property. And endpoint in fact, in the most recently reported earnings, which I believe were reported last Friday, in their earnings release, you can read about such a transaction. My own view is that there's going to be a lot more data centers in that region of the nation because the attributes are such low population density, ability to access water, ability to access extremely low-priced natural gas. It's very hard to build a natural gas pipeline in the United States of America, anywhere in the United States of America that cross the state lines and to provide the requisite fossil fuel. So it has a long future ahead of it that's seeing bright, bright and prosperous. And I think that the market has only begun -- just begun to appreciate its potential. So that's the way I answer that.

Okay. The next question is a little bit technical. It's related to income taxes, and I'll be happy to address it if you like. The question is really simply why the high amount of income taxes. So -- and what I would say there.

Why don't you address that, Mark? Go ahead, please.

Yes, absolutely will. For income taxes, the -- first of all, it's a complicated area. And the transaction that I referred to earlier where we converted from an LLC to a C corp is really just part of becoming a public company. So that had the impact of changing it from a, like I said, a pass-through organization where the earnings of the company were passed through to the underlying shareholders to a fully taxable entity. And when we're thinking about financial reporting, the impact of that is if you have an unrealized gain at an investment, for example, you would provide a tax -- a deferred tax for that at your combined federal, state and local tax rate. So the company had a very small tax that was applicable in the past that was unrelated to individual taxes. Now the company has a combined burden of approximately 31%. So at the conversion, there was this deferred impact of unrealized gains that have built up over a number of years, obviously. And so in effect, it's similar to a cumulative adjustment that otherwise would have been recognized as a deferred tax expense over many years, we got the full impact of that on June 30. So that -- in terms of magnitude, that's about a $60 million noncash event to our income statement this year. Now of course, that would be converted to a tax expense if you liquidated the portfolio, which is not in the plans. The other component of taxes for this quarter would be -- again, another element of deferred taxes. The company had unrealized gains that have been significant, right? So to the extent you have unrealized gains, you're providing, again, another 30% of that, setting aside for future taxes in the event of a sale. So it's a bit of a -- use a technical term, lumpy area this year and this quarter for us, but that's -- those are the drivers for the income taxes. And then I will turn it back over to you, Murray. The next question we had deals with the dividend. So I guess, address the dividend topic again, if you will, and really this time from the concept of capital allocation. So is there -- are there other ways that we, as an entity, could be spending the money in, instead of just returning it to shareholders and maybe your perspective on how we would choose to make that allocation.

Well, at the moment, my view is I think that's the right allocation. We want to reward our shareholders for our success. The basic problem is we couldn't pay out 100% because then we wouldn't be investing alongside our shareholders, and we wouldn't be able to start new products. So it can't be 100%. And on the other hand, we don't want to keep 100% because that's not needed. So you just got to find a happy median. And 70% or thereabouts ends up being a happy median. There is an advantage to holding the money, as you can see, because that's the kind of profit we don't pay taxes on until we sell the securities. So it can be very, very lucrative. The other thing is there is no operating expense to carrying the investments. So after a number of years, when the investments appreciate, they get to be very, very large capital sums and even a small amount of appreciation, and you can see it right now, that appreciation dwarfs our earnings, our operating earnings when it really works. Sometimes it works the other way, you can have depreciation. But in any event, it gives us a certain staying power and operational stability in any crisis. So for example, in the coronavirus crisis, we didn't lay anybody off. We even paid dividends during the coronavirus crisis, and we didn't apply for nor did we receive any aid from any government entity that was completely unplanned for eventuality. No one realized that, that was impossible, that sort of thing. So it gives us a certain amount of staying power in the world of uncertainty. And I think all the shareholders, once they understand the benefits, we really feel pretty good about owning shares in an extremely well-capitalized company. If we found a great investment that would require more capital, we wouldn't make a material change to the policy without discussing with all the shareholders. So we don't intend to make radical changes, maybe cosmetic changes, but nothing radical. We're going to give everybody plenty of warning if we do it. But I don't foresee that eventuality in the future. It could happen, but I just don't foresee it. So that's the way I'd answer that.

Okay. The next question deals with our investment decisions. So the question is -- and you've spoken on other venues at other companies about our 3 largest holdings and why we've invested in them and their prospects. And I'll sort of set the table just a little bit for those that are not familiar with the details of Horizon Kinetics holdings. So in our case, the largest single holding would be Texas Pacific Land, which makes up about $51 million out of a $75 million portfolio. If you think about the top 3, then the question just within that line item, the next couple of items would be Kinetics, a couple of mutual funds that are within the Kinetics family, Kinetics Markets Opportunities Fund is about $6 million. When you take another step down or you look around the balance sheet for other large holdings, I guess the next thing that maybe we could address will be the holding in Polestar, right, the proprietary fund. It's a large holding where we have equity. And then, of course, just Bitcoin itself at a $8 million value for the company the company holds at. So I'll broaden the question just a little bit and see if you have any comments about that allocation or how you think about them going forward.

Okay. Okay. Well, the first thing, I wouldn't use the word allocation. So before I get to the allocation, let me just talk about the funds. The largest holding in the funds, you can't really see it, and that's why we're going to have to, at some point, do a table like the table we do in FRMO to look through the funds. So in FRMO, we have a table of the funds, then we have a separate table. We look through the funds, you can see what our largest holdings are. So we've already mentioned where our largest holdings are. You just can't see inside the fund, but the funds own allowing for some rounding error, the same thing as we own. So it's not meaningfully different. First thing I understand, the reason I wouldn't use the word allocation is people sort of think that, well, if we own $51 million of Texas Pacific, they get the idea that we bought $51 million of Texas Pacific. We did not buy $51 million of Texas Pacific. We bought a much lesser sum of Texas Pacific and it merely appreciated to the level of $51 million. So some people, when they realize that, they'll change the question is, well, why do you let it get so big? So that's probably the question I really should address. So I'll do it this way. When you buy a portfolio of end stocks, N could be 10 or end could be 20 or N could be 100, no matter what you do, the individual returns of the securities in the portfolio are going to be normally distributed. Other terms had a log normal or Gaussian, but in layman's terms, it means a bell-shaped curve. And in more layman's terms, it means is of your end securities, something is going to be your best position, your best holding, the one that performed best, even if they're all great, and it's going to be normally distributed. What you want to happen is, of course, you want to maximize your wealth. So the only way mathematically to maximize your wealth is to leave it alone and let the best position become the biggest position. The probability of having a 3 standard deviation return security in your portfolio is less than 1%. So if you take that security and you're constantly trimming it to buy something else, you will have a suboptimal return. So I'm going to illustrate that mathematically. Sorry, doing it over the phone. If I was in person, I could do something a little more profound. So let's make the following hypothetical case. I own security A. It doesn't really matter how much money I have it, whether it's $1,000 or $10,000 or $1 million. I have a certain amount of money at. And I, let's say, became a certain position in my portfolio, and they said, I really don't want to have a position greater than x percent. So I sell it, and I'm going to invest the proceeds. I'm going to do some other security or maybe several securities, but let's make it easy. Let's say I'm going to sell the security and I'm going to buy another security on the idea that I just don't want too much risk. I don't want too much in any one position, a normal thing that people do. Let's say, I'm a really great stock picker, which I probably am not, but let's say I was. And what's the probability that I'm going to be right? Most people would be pretty arrogant if they told you when they did a trade, they were right 70% of the time. So in this hypothetical example, let's assume that we're right 70% of time, except One of the subtleties of this is one of the nuances is you're not trading in security, you're actually trading in 2 securities, meaning you're selling a security and taking the capital, we're ignoring taxes, of course, and reinvesting in another security. So you have a 70% probability of being right on the sale and you have a 70% probability of being right on the buy. So your outcome is based on the joint probability. So 70% or 0.7 on the sale, 70% of 0.7 on the buy, 0.7x 0.7 because that's the joint probability is 0.49. If you do that trade, even you're a great stock picker, you have a less than 50-50 chance of having a successful outcome. That's just the math. So if you want to have a good historical performance, if you're trading around positions, you're not going to have a good historical performance. Those are numbers. Even if you're right 70% of time. Where does 70% come from? Well, it's hypothetical, but it's not entirely hypothetical. If you were look at a security like Berkshire Hathaway, not every investment they make is successful. So I think if you studied all the trades done in Berkshire Hathaway, I don't think even that is right 70% at a time. It's right much more than 50-50, but not 70%. So even 70% were to happen, it doesn't appear to me that it actually happened. Your odds of 0.49. The odds are against you. So the math says, don't fool around with it unless you have to. In other words, leave it alone. And that's what we do. you may think that's not doing your work. Some people use the term benign neglect. But you really need to think long and hard before you transact in your portfolio, you are to lever alone. I've written some papers on this subject where I go into a lot more detail, but that's the simplistic math of it. And at least as far -- I've thought about this for decades, and I've never come up -- been able to come up with another view. But I'd be interested in hearing countervailing views if you have them. So that's how I'd address that question.

Okay. I had a couple more come in. I'll give you another break, if you like. This is another one regarding taxes about should we expect the same tax consequence for the fourth quarter, to which I would say no. What is very unique to the third quarter is that we included this $60 million deferred tax charge from the conversion. So what we normally should expect would be roughly 31% of what the company records as operating as a pretax income or loss would be provided for taxes. Importantly, that is divided between 2 different elements. One element will relate to current taxes, which is very much more akin to the tax liability you would have for the current year. And the other is deferred. So we may have significant tax amounts for deferred taxes that are going to go up and down because of our unrealized positions going up and down. And then we'll have another amount for current. And so I will endeavor to think of a better disclosure or maybe another way to talk about that in future meetings to make sure we illustrate the difference between our cash taxes and the book taxes that you'll see on the face of the income statement. But we do not expect to see another more than 100% charge for a conversion in the fourth quarter, that's for sure. The next question, and I'll turn it back over to you, is around original shareholders. I think this question is related to Horizon Kinetics LLC being allowed to sell their shares. I know there's a process there, but I just want to see if you wanted to address that at all or you want me to address that?

Well, I'll address it. So basically, what we need to do is we don't want to stop anybody from selling shares. What we need to do in simplistic terms, feel free to add some color to this, Mark. We need to register the shares, which means we have to file a registration statement with the Securities and Exchange Commission, and we're working on that, and we're going to file a statement in due course. And once the shares are registered, the shareholders will be at liberty to sell if they so choose.

I think it's really as straightforward as that, right? I mean it's -- there's a process that we have to go through, and it takes time to prepare documents and get that ready to go. And that the S-3 registration statement that you referred to there is something that we have on our list of to-dos and it's being worked on, and we will get to it as soon as practical. The next question is similar is, have we considered uplisting the shares to New York Stock Exchange or NASDAQ. And I guess the question is talking about an average volume that's required to do that. And maybe we can address it a little more broadly of just do you see any value in listing the shares at NASDAQ versus OTC over the long term?

Yes. Well, let's just put it this way. As far as NASDAQ goes, FRMO, which is a sister company, believe it or not, FRMO actually is eligible for uplisting right now. We'd have to do the same thing. We have to file a registration statement with the SEC, and we have to comply with all the rules in that. To qualify for New York Stock Exchange, you have to have a certain amount of volume. The trouble is that we don't qualify have that volume. The reason we don't qualify is because the shareholders have not yet sold their shares. So we need to get that volume. And we can't get that volume until we file the registration statement. So I think the first step is to file the registration statement and see how many people sell shares. And when we have that figure, we have an average volume, then we can determine where we want to uplist. So our destiny is not to stay where we are right now. But for the moment, all that does is a little bit of volume and it gives us an indication of the price. So to get to the next level of volume, we're going to have to have more liquidity. The only way is to get liquid -- there's only 2 ways to get liquidity, either the shareholders have to sell shares, and we have to do something as previously discussed to make that happen. We just filed the registration statement, which we will absolutely do. If there's not enough share volume, meaning people have chosen not to sell, the only way to get the volume is we're going to have to issue some shares. We'll have to either merge with another company that has some more volume or we're going to have to do a stock offering and get some shares in the marketplace. But I suspect some people who've had their shares for many, many years will like some liquidity, and I think that's going to be a solution and problem. I think we'll qualify for listing ultimately wherever we want. But as I said, the next thing on the critical path is the registration statement. So unless we do that, we really can't do anything else. So that's the next thing that's going to happen. It should happen in due course, but I can't give you a date yet. So I hope that addresses that.

Next question, it goes back to the dividend topic, and I would characterize the question as being a bit negative towards the size of the dividend and what maybe were earnings of the company prior to the merger or prior to second quarter, first quarter. Would that -- should that have been considered into making the initial dividend larger in the third quarter?

The basic philosophy always was we're paying out 70% of the earnings after taxes. The major critical variable is we didn't pay taxes or at least we didn't pay very many taxes in our private configuration. Now we pay some taxes. So the earnings are constant. the tax is going to be lower. But then again, we paid very substantial taxes on our dividends. So if you adjust for the taxes that we're going to pay to shareholders on those dividends, we're not really that bad off. And I think you'll be very happy when you see our earnings going forward. And I think you will not be displeased with the dividend. I can't promise anything, but I don't think you'll be displeased. So just be a little patient. There were some extra expenses we had to undertake for the merger. They were not insignificant. There were some other expenses we had to undertake just to get public. When you think of all the filings we had to do, we had to build some infrastructure. We didn't need to have as a private company, and that cost money, too. So I would just say, be a little patient, and I think you'll be very pleased with the outcome.

Okay. Sorry. The next question deals with, I'll call it, Investor Relations. And the question is, when or will the company put on a marketing campaign to show how well the company has been doing?

What we're going to do is we're going to have a quarterly conference call, going to have results, and we don't have a plan to do a marketing campaign. It's not called a marketing campaign. It's called a non-deal roadshow. And just too early yet to do a non-deal roadshow. So what that means non-deal roadshow means you visit with investors and you tell investors about your company. Some people call Investor Day, some people call non-deal roadshow. So the best time to do it, I think, is after this year is completed. So we're near the end of the year. December is probably not a great time to do it anyway. The first or 2 weeks in January is not a great time. So I think what we're going to do is we're going to revisit that issue in 2025, and we'll see what happens.

Okay. Sounds like a plan. I do not have any further questions that I'm seeing in the chat on my e-mail, which is filling up with them as too. And Therese, I don't know if you're on, if you have anything else, please ping me. So I guess in the absence of other questions, Murray, is there anything you'd like to say in closing?

Yes. I'd just like to say thanks, everybody. They were really good questions. And we are at your disposal. So maybe we didn't address a question that will occur to you subsequent to this call. Don't hesitate to contact us. We'll get you an answer. In the future, we'll have a table like we have of FRMO of our look-through holdings. We're still going to report the funds, but you will see when you aggregate everything, what we actually own, you'll get a lot more detail on the holdings. And if there are other things that need disclosure or you're curious about them, we intend to be very transparent. And if we can do it, if you have the figures, we'll be glad to do it. So thanks again for the call. Thanks again for attending, and thanks for your support, and we'll reprieve this call in about 90 days. So thanks again, and I guess we're going to sign off now.

All right. Thank you.