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Welcome back to The Rate of Change with York Wealth Management.

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As advisors to some of the wealthiest families in the country, The Rate of Change is a podcast

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designed to help you in the pursuit of building long-term wealth through the insights of some

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of the brightest minds in asset management.

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I'm your host Murdoch Gaddi and in today's broadcast we're speaking with Michael Frazes,

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the managing director and portfolio manager of Frazes Capital Partners.

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Keen listeners will remember Michael from last year.

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We wanted to have him back on to see how the fund and his venture capital fund, which operates

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in global growth, has been performing over the past year.

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Michael also unpacks what he's looking at in the tech and biotech space, things that

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he's purchased and sold, as well as he discusses his new AI-backed risk management tool he

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has built from scratch to help lock in future profits from a timing perspective.

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If you listen through the podcast, he says exactly what the URL is or the website and

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we also take it for a test drive across some interesting companies.

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So I enjoyed this conversation.

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I always find these conversations so interesting because there's so much happening out there

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in the AI space, the biotech space, names that you've never heard of that these guys

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look at.

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It's so interesting.

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So if you listen all the way through to the end of the podcast, I recommend you do so

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so you can hear the disclaimer and please keep your feedback coming and you can reach

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me at mgatty at ywm.com.au.

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So with that being said, I hope you enjoyed this conversation as much as I did.

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So sit back, relax and enjoy it.

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Michael Frazes, welcome back to the rate of change with your Qwerth management.

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Hi Meruc, thanks so much for having me back on.

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Yeah, what has been about 12 months?

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Something like that.

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How the year has flown.

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I know.

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Why don't we kick things off because there's a lot of people that have definitely heard

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of you heard the podcast before but for our new listeners or new to the fund, why don't

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you give everyone a little bit about who is Michael Frazes and what the fund does.

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Yeah, sure.

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So we have a global listed equity fund that invests in technology and the life sciences

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focusing mostly on small and big cap companies with you know, explosive growth through customer

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love and really focusing on those companies, you know, growing exceptionally fast, so 50

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to 100% plus.

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We also run a venture fund which focuses in on similar areas, so life sciences and technology,

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mostly in Australia.

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So they're the two funds we operate.

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So for everyone, just to get everything off and running, how has the just looking back

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the past 12 months, how's the performance been and you know, how was everything in the

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latest update?

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I think the latest update, we're up 40% for the calendar year to date.

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It's been a small pullback since which has kind of been across the board.

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I think the market has just been marching ahead, you know, pretty much since March.

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I think as we went into this year, everyone was expecting something very different.

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You know, there was a really bad 2022 for most asset classes, certainly ourselves included

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with our focus on high growth stocks and healthcare.

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But then really like the opposite of what everyone expected happened.

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We didn't go into recession, spending held up, employment held up around the world.

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And we also had in the technology space, which was really on its knees a year ago, this entire

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new platform for these large language models, which have just triggered this immense round

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of investment and not just investment, you know, genuine revenues coming from these new

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companies or these new divisions and new companies.

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And so I think that's really been the story of the last 12 months.

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It has caused this huge diversion.

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I mean, there's always a case in indices, there's always a handful of companies driving

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returns.

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That's not something that's unusual to this particular time, but it seems particularly

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accentuated right now because most small and mid cap growth companies, you know, whether

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you measure by cloud computing ETFs or biotech indices, most of them are still kind of very

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depressed and very down from their highs two years ago.

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So it's really been in our space, a tale of two markets.

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You know, there's been a handful of companies that have been on the right side for that

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AI shift.

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And, you know, the recipients of those billions of dollars and also the beneficiaries of now

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two years almost of cost cuts.

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And then you've got the small and medium sized companies, which more often than not have

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been on the receiving end of those cost cuts and haven't done so well and are not one of

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the handful of companies that, you know, perfect position for this AI boom.

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So that's kind of how we're seeing things at the moment.

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Would you say it's like a two speed economy?

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It's like you're in AI and the manufacturing side or you're just not and then essentially

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they're underperforming or do you think essentially this AI just like a rising tide, you know,

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has lifted all boats?

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Yeah, definitely.

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I mean, if you think about it, there's been, there's still kind of a freeze on VC investments.

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There've been very, very few companies listed.

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There's been a handful which we can talk about, including some that are relevant to us.

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But, you know, there's like this capital freeze, capital drought for this huge part of the

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market at the same time, there couldn't be more capital thrown at this new AI opportunity.

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So there really is that two speed and that's just within AI.

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You know, even before that took off, it was crystal clear that, you know, these big companies

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were going to do rounds of layoffs and cost cuts.

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And that was going to create or has created a down cycle in software and in all the small

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companies that service those larger companies.

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So when Meta lays off 10,000 staff, that's 10,000 office subscriptions, that's 10,000

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times the 40 or 50 different software subscriptions every person will have.

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And that created huge amounts of churn across the board.

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And so, which by the way, is not what people are expecting.

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So the whole promise of these software companies was that they weren't cyclical and it was

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recurring revenue.

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And it's really been the case that that has not turned out over the last kind of year.

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It's been a red down cycle in that part of the market.

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And that's still ongoing, though it does seem to be steadying now.

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And you know, we're a year and a half into this, depending where you count from.

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And it does seem that, you know, a lot of these companies have continued to grow and

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are continuing to invest and are continuing to add headcount now as well.

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So we could be, there is a green light at the end of the tunnel, finally.

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Do you reckon that the increased cost of rates going up and the cost of money has had a big

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impact on these companies?

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Or do you think there's been enough growth, you know, in that particular space to kind

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of offset that?

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I think it was just a one-off big reset.

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You know, you've basically had since the 80s, you know, falling interest rates.

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And now for the first time, really since then, you've had a huge increase in interest rates.

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And that caused, you know, huge contraction in valuations.

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That's kind of happened.

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But you know, there's been many times with high interest rates where the world's just

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been fine.

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You know, some of the biggest tech booms have happened in periods where interest rates were

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quite high.

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So there's nothing that says high interest rates means that growth stocks can't perform.

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It does certainly affect the valuation of every asset class.

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But I'd say that's kind of happened.

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And also, it does seem like interest rates have shifted, have kind of peaked.

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And you're seeing for the first time a little bit of weakness in the data in the United

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States.

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And you've certainly seen throughout this year inflation rolling over decisively around

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the world.

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So if interest rates have peaked, that means the value compression has peaked, which means

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that the return of a growth stock is going to be much closer to its actual organic rate

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of growth, which is good news for holders of those assets.

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So I think what we're going to do is we'll definitely jump into tech and the growth side

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there and then we'll rotate into the life sciences.

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But I love behavioral psychology.

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And one thing I wouldn't mind asking you is with essentially what we've seen in the past

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couple of years, do you think there's been a shift in customer behavior?

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Is that due to the customers, their lives changing?

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And I don't know, maybe the cost of, or they have less disposable income to spend or as

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an example, right?

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For a number of years, Silicon Valley was the beacon.

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That's where you go.

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But then all of a sudden, agendas changed, politics changed, people didn't want to live

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there.

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The actual having that, your business in Silicon Valley became way too freaking expensive in

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the likes of Tesla, even Joe Rogan.

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People moved to Texas because just using America as an example, the tax structures, they're

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offering various things to these companies that actually made the cost of running the

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business easier, simpler, more efficient, we can make more money out of it.

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And then there's been a relocation.

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Are you finding that there's been a shift in the consumer and the business behavior

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in various areas where you're looking at these companies?

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I mean, I think everything's changed.

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I think everybody who's spending money, whether you're in charge of a budget of a software

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company or family, you've had to really adjust on what you're spending and how you're thinking

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about that, both on the business side and the consumer side.

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Even in Australia, I think that huge lift in interest rates or mortgage rates from 2%

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to 6% roughly, that's a huge impact on everybody's budget.

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It's not like the world stopped or people stopped buying things they need to buy.

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Everyone just had to make hard decisions and shifted their own spending.

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And it certainly made everybody sharpen their pencil and make sure they're really spending

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on the things that they absolutely need to spend.

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Whereas there was a period where, you know, strange look back, money was flying around.

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Everybody seemed to be so cashed up.

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Everybody was looking for new investments.

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Everyone was looking for new things to spend money on.

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It couldn't be more different to that now.

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Again, like from the smallest, from a single person in Australia, like the largest company

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in the United States, everybody's had to make that calculation.

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Money's just worth so much more now.

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Everybody's being so much more careful.

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And it'll probably be like that.

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I imagine at the end of 2000, 2002, it was exactly the same.

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Then post the GFC.

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And it kind of took 10 years for that to heal and for everybody to get really excited again.

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So as a base case, probably looking at five to 10 years of this kind of environment.

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That's not to say that great companies aren't going to do extremely well.

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So where globally do you see the growth coming from now?

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Look, I think there's two really exciting parts.

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There's obviously individual companies that are doing exceptionally well.

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I think in the life sciences, there's been this kind of revolutionary new class of drugs,

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which is the GLP-1 agonists for weight loss.

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And these injectables, they'll soon be oral forms.

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And the next generation is even stronger.

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And this is just going to change, have huge impacts on health statistics and also spending.

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There hasn't been a drug that caused people to lose 15% to 25% of their weight in the

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past.

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And if you think about the trends in health care, they've all been very clear and very

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one way.

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It's been aging population and growing obesity and growing health issues related to obesity,

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whether it's sleep apnea, heart disease, huge, huge conditions, demand for heart valves,

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demand for resmeds, CPAP, Darth Vader masks.

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It's all been one sided for many, many years.

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But now there's this new treatment and it's not quite clear how that's going to play out.

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My view is, obviously people still sadly going to have health problems.

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And if you kind of lose a lot of weight, it's not like you're not going to pass away, again,

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sadly, or have a heart attack at some point.

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It just might be much further when you're much older.

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So I don't think it's going to have a huge impact long term, but there will be pockets.

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For example, if you're doing weight loss bariatric surgery, which typically gives 15 to 25% effective

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weight loss, why would you undertake that severe painful surgery if you can just take

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a pill once a week?

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So there will be parts of the life sciences space that are completely turned on their

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heads and there'll be huge opportunities there as well.

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And one of the opportunities will be that in the last month or so, a lot of companies

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that even tangentially related to obesity related conditions, which applies to a huge

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number of companies, they've all sold off significantly.

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There's definitely a lot of diamonds in the rough.

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Those growth med tech companies are probably as cheap as they've been in five years.

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Yeah, we're talking off air.

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I was listening to Sean Baker, people listen to Joe Rogan.

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There's a huge amount of conversation out there.

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You're on one side of the fence to the other.

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Don't offend anyone, but some people are in the medical camp.

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Some people are on the only greens.

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I personally went on the carnivore and dropped 15 kilos in five weeks because essentially

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just removing everything that created an immune response in my body that was just angry with

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me, kind of removed all that and just pretty much lived off rib eye stacks.

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It was fantastic.

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But also there is definitely a need for having these types of products available for people

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to improve their lives.

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I think we're discussing off air as well something crazy.

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If you're looking at since what, 45, the preservation of food, the amount of chemicals and everything

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in your food.

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I think I walked through Coles and Woolworths and you read what's on the back of these packets.

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I think there was only one thing which was prosciutto that only had salt and meat.

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Everything had some form of preservative in it.

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You kind of wonder what you're consuming.

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Yeah, there's a great article that did the rounds.

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I think it was about a year ago that kind of highlighted why are people getting fatter?

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Why was everybody so skinny 100 years ago?

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Why has that been one way?

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It's actually a really hard question to answer because it's not obvious that it's come from

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increasing availability of calories or anything like that.

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In many cases, some people used to eat a lot more butter.

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You need a lot more fatty foods, things like that.

230
00:14:15,920 --> 00:14:19,240
There's a few kind of people have pointed their finger at a few different things, whether

231
00:14:19,240 --> 00:14:21,720
it's seed oils or it's kind of hard to say.

232
00:14:21,720 --> 00:14:24,120
One thing for sure is these drugs kind of do work.

233
00:14:24,120 --> 00:14:29,040
Actually, one of the things I find most interesting about them is these receptors that they work

234
00:14:29,040 --> 00:14:32,760
on are in your stomach, but they're all over your body, including your brain.

235
00:14:32,760 --> 00:14:37,720
They found firstly with monkeys actually, who are getting drunk off rotten fruit.

236
00:14:37,720 --> 00:14:42,280
When they gave them these injectable drugs, they also repeated this experiment in the

237
00:14:42,280 --> 00:14:43,280
lab.

238
00:14:43,280 --> 00:14:46,840
There's lucky monkeys that got that instead of the Ebola division.

239
00:14:46,840 --> 00:14:50,320
When they gave people these drugs, they stopped drinking as much.

240
00:14:50,320 --> 00:14:55,780
Anecdotally, that seems to be a kind of universal effect of these things that you become less

241
00:14:55,780 --> 00:15:01,760
impulsive in other parts of your life, whether it's drinking, gambling, spending money, online

242
00:15:01,760 --> 00:15:02,760
shopping.

243
00:15:02,760 --> 00:15:04,400
What does it actually do?

244
00:15:04,400 --> 00:15:06,600
So it's an injectable, right?

245
00:15:06,600 --> 00:15:10,680
We're discussing this, but there's not many pins around which are out of demand, but there's

246
00:15:10,680 --> 00:15:11,680
quite a lot of them.

247
00:15:11,680 --> 00:15:12,680
Yeah.

248
00:15:12,680 --> 00:15:17,000
There's certain rhythms that you see in life that just keep repeating.

249
00:15:17,000 --> 00:15:21,960
Obviously, these things became popular and immediately the exact same doctors in mom's

250
00:15:21,960 --> 00:15:24,120
groups you'd expect say, oh no, this is unhealthy.

251
00:15:24,120 --> 00:15:25,120
We can't do this.

252
00:15:25,120 --> 00:15:26,120
Do everything natural.

253
00:15:26,120 --> 00:15:29,320
Then there was a publicized shortage.

254
00:15:29,320 --> 00:15:32,440
Of course, these are the biggest companies in the world.

255
00:15:32,440 --> 00:15:35,520
There's plenty of supply available.

256
00:15:35,520 --> 00:15:37,600
You can order these things online in Australia.

257
00:15:37,600 --> 00:15:43,320
Actually, one of the big shortages was the pens that they're in, which need to be replaced

258
00:15:43,320 --> 00:15:44,320
I think every month.

259
00:15:44,320 --> 00:15:46,160
Yeah, it's injected once a week.

260
00:15:46,160 --> 00:15:47,160
It's painless.

261
00:15:47,160 --> 00:15:49,000
What does it actually do?

262
00:15:49,000 --> 00:15:51,680
Once it goes in, what does it actually do to the body?

263
00:15:51,680 --> 00:15:55,320
It hits these receptors, these GLP-1 receptors and blocks them basically.

264
00:15:55,320 --> 00:15:59,280
It basically says that you're full amongst other effects.

265
00:15:59,280 --> 00:16:05,960
For example, it's been an open question why is surgery literally cut parts of your stomach.

266
00:16:05,960 --> 00:16:08,680
It sounds a lot less effective than gastric band or like removed.

267
00:16:08,680 --> 00:16:09,680
Gastric band.

268
00:16:09,680 --> 00:16:11,080
Why is that so effective?

269
00:16:11,080 --> 00:16:12,320
It's not just because you feel fuller.

270
00:16:12,320 --> 00:16:17,400
It all seems to have an impact on these receptors as well.

271
00:16:17,400 --> 00:16:20,360
It'll slow down the rate at which food leaves your stomach.

272
00:16:20,360 --> 00:16:23,640
It'll also make you feel fuller.

273
00:16:23,640 --> 00:16:28,960
Because probably some mix of those two things, it all seems to reduce the spikes in insulin

274
00:16:28,960 --> 00:16:35,200
levels, which alone is enough to have some pretty significant health benefits.

275
00:16:35,200 --> 00:16:40,360
These were ultimately developed as diabetes drugs, not as weight loss drugs.

276
00:16:40,360 --> 00:16:44,560
Do you find that actually reduces your cravings for sugar?

277
00:16:44,560 --> 00:16:45,560
I tried these.

278
00:16:45,560 --> 00:16:46,560
I tried these.

279
00:16:46,560 --> 00:16:48,360
What was my experience with them?

280
00:16:48,360 --> 00:16:51,000
I would say it's bizarre because you do feel full.

281
00:16:51,000 --> 00:16:52,440
They're extremely powerful.

282
00:16:52,440 --> 00:16:54,440
I can't imagine taking anything more powerful than what I did.

283
00:16:54,440 --> 00:16:56,320
I tried a Zempi.

284
00:16:56,320 --> 00:16:59,240
I really couldn't imagine trying anything more powerful.

285
00:16:59,240 --> 00:17:02,560
So I've tried to think of what these new generation will do, but I'm sure they'll be extremely

286
00:17:02,560 --> 00:17:03,560
effective.

287
00:17:03,560 --> 00:17:06,920
But yeah, you can't have more than two or three beers.

288
00:17:06,920 --> 00:17:07,920
You'll feel full.

289
00:17:07,920 --> 00:17:08,920
Yeah, right.

290
00:17:08,920 --> 00:17:14,320
I think Novo is being sued in the United States for not being clear enough that you can have

291
00:17:14,320 --> 00:17:15,600
like really bad stomach conditions.

292
00:17:15,600 --> 00:17:19,680
I kind of find that hilarious because it means that people are just continuing to eat enormous

293
00:17:19,680 --> 00:17:23,560
amounts no matter how much it kind of hurts and how full they feel.

294
00:17:23,560 --> 00:17:28,960
But yeah, it really does have those effects and it's really powerful.

295
00:17:28,960 --> 00:17:32,680
So if anyone's on the fence, I think it's something that's interesting and worth trying.

296
00:17:32,680 --> 00:17:37,080
The only reason I say that, and I'm not a doctor, so speak to a doctor, but there has

297
00:17:37,080 --> 00:17:42,000
been 10-year studies of these drugs that have been in the market for a long time.

298
00:17:42,000 --> 00:17:46,920
We don't know the 20-, 30-, 40-year effects and there probably will be effects, but we

299
00:17:46,920 --> 00:17:52,480
do know in those long-term studies, they did have overall strongly beneficial outcomes,

300
00:17:52,480 --> 00:17:56,640
including less heart attacks or most notably less heart attacks.

301
00:17:56,640 --> 00:17:58,520
So that was some data that was released.

302
00:17:58,520 --> 00:18:04,320
It was only a few weeks ago from Novo from a very expensive large study that showed they

303
00:18:04,320 --> 00:18:08,320
did have the effects that you would assume that people losing weight and having lower

304
00:18:08,320 --> 00:18:11,760
blood sugar spikes would have.

305
00:18:11,760 --> 00:18:17,040
So I think it's probably one of the biggest things that's happened in medicine in a while.

306
00:18:17,040 --> 00:18:21,840
Yeah, and interestingly, Eli Lilly, which is, so you've got Novo that does a Zempik.

307
00:18:21,840 --> 00:18:23,720
Eli Lilly, which does Monjaro.

308
00:18:23,720 --> 00:18:29,120
And Eli Lilly seems to be winning in the next generation in terms of oral drugs.

309
00:18:29,120 --> 00:18:31,480
And we always talk about GLP-1s.

310
00:18:31,480 --> 00:18:33,800
There's two other receptors that their next generation hits.

311
00:18:33,800 --> 00:18:37,120
They'll hit three receptors, so it must be pretty powerful.

312
00:18:37,120 --> 00:18:41,000
And that's the drug that's kind of showing the most weight loss.

313
00:18:41,000 --> 00:18:43,160
They also came out with an Alzheimer's treatment.

314
00:18:43,160 --> 00:18:46,160
That's two huge wins for that company.

315
00:18:46,160 --> 00:18:49,000
And there's no doubt they'll probably become now one of the most, they already are, but

316
00:18:49,000 --> 00:18:50,380
will become even more.

317
00:18:50,380 --> 00:18:53,840
Also one of the most valuable companies in the world.

318
00:18:53,840 --> 00:18:57,000
There's definitely some interesting stuff going on in the healthcare space.

319
00:18:57,000 --> 00:18:58,000
Yeah.

320
00:18:58,000 --> 00:19:01,880
And then, well, theoretically, healthier organs, which actually brings me onto the next thing

321
00:19:01,880 --> 00:19:05,280
we're discussing, which is, is it transmedics?

322
00:19:05,280 --> 00:19:06,280
You ordered the organs.

323
00:19:06,280 --> 00:19:07,280
Yes, this is one of those.

324
00:19:07,280 --> 00:19:08,280
That was very interesting.

325
00:19:08,280 --> 00:19:10,120
Do you want to run everything through transmedics?

326
00:19:10,120 --> 00:19:11,120
It's fascinating.

327
00:19:11,120 --> 00:19:14,880
So this is a company in the United States that's trying to create a national, I think

328
00:19:14,880 --> 00:19:19,320
markets probably the wrong word, but national distribution for donated organs.

329
00:19:19,320 --> 00:19:26,200
So in the past, organs were kind of carried around in ice buckets effectively, very unsophisticated

330
00:19:26,200 --> 00:19:27,840
and they only lasted about four hours.

331
00:19:27,840 --> 00:19:32,680
So if you think about the time it takes to get that to a patient that's needed and then

332
00:19:32,680 --> 00:19:36,560
conduct the surgery, there's a very small window and you can only be transformed in

333
00:19:36,560 --> 00:19:39,920
very short distances.

334
00:19:39,920 --> 00:19:44,440
What they do is they actually keep liver, heart and lungs, they actually kind of connect

335
00:19:44,440 --> 00:19:51,200
them up, keep them warm, keep the hearts beating, keep blood flowing through these organs effectively

336
00:19:51,200 --> 00:19:53,400
in these transportable boxes.

337
00:19:53,400 --> 00:19:56,560
And this dramatically extends the lifetime of them.

338
00:19:56,560 --> 00:19:58,680
Sounds like a little transfusion device.

339
00:19:58,680 --> 00:20:02,760
So the blood's continuously pumping or something's pumping through that organ to make sure it's

340
00:20:02,760 --> 00:20:03,760
popping.

341
00:20:03,760 --> 00:20:04,760
Yeah.

342
00:20:04,760 --> 00:20:08,720
I mean, if you Google transmedics, like beating heart in box and you will see a heart beating,

343
00:20:08,720 --> 00:20:12,800
you can see it because it's all visible.

344
00:20:12,800 --> 00:20:16,160
And they've got, I think last year they had something like 7% market share growing in

345
00:20:16,160 --> 00:20:17,800
triple digits.

346
00:20:17,800 --> 00:20:19,480
It's clearly superior to the existing.

347
00:20:19,480 --> 00:20:20,480
What's the market cap?

348
00:20:20,480 --> 00:20:23,120
It's about a $2 billion company.

349
00:20:23,120 --> 00:20:26,640
You can draw, if they actually take significant market share, you can draw a line to 1 billion

350
00:20:26,640 --> 00:20:28,440
plus of revenue.

351
00:20:28,440 --> 00:20:31,480
So does a hospital purchase these or do they lease them out?

352
00:20:31,480 --> 00:20:32,480
What's the business model?

353
00:20:32,480 --> 00:20:36,280
I think they make about 100,000 per donation.

354
00:20:36,280 --> 00:20:38,960
So yeah, of course you have to pay to have this.

355
00:20:38,960 --> 00:20:43,080
And they've also bought, recently they just bought a small airline.

356
00:20:43,080 --> 00:20:44,080
They bought an airline.

357
00:20:44,080 --> 00:20:49,440
So they're having trouble getting enough capacity on planes because there'll be an accident

358
00:20:49,440 --> 00:20:54,560
or somebody would have brain death or heart death and they would need to transport it

359
00:20:54,560 --> 00:20:56,200
to where it needs to go immediately.

360
00:20:56,200 --> 00:21:00,440
So there might not be a way to get it to where it needs to go.

361
00:21:00,440 --> 00:21:03,040
So they were kind of losing organs, so to speak.

362
00:21:03,040 --> 00:21:06,800
And actually this idea of losing organs is a real issue because most organs that are

363
00:21:06,800 --> 00:21:11,800
available to be donated aren't able to get anywhere in time.

364
00:21:11,800 --> 00:21:15,840
And there's a huge wait list for all of these organs.

365
00:21:15,840 --> 00:21:19,800
So by increasing the time that these things can stay alive, they're actually going to

366
00:21:19,800 --> 00:21:26,200
be able to increase the total number of transplants that can be done and really make a dent in

367
00:21:26,200 --> 00:21:27,640
that major medical issue.

368
00:21:27,640 --> 00:21:32,320
Is there any studies that are being done to say exactly what the loss, like the improvement

369
00:21:32,320 --> 00:21:33,920
of the loss rate is from this?

370
00:21:33,920 --> 00:21:35,720
Yeah, they have done those studies.

371
00:21:35,720 --> 00:21:41,120
I don't have the numbers off the top of my head, but it'd be over 75% of some organs

372
00:21:41,120 --> 00:21:42,120
would not be used.

373
00:21:42,120 --> 00:21:44,680
They're available because they just can't get somewhere in time.

374
00:21:44,680 --> 00:21:46,880
Whereas with transmedics, that can go up to...

375
00:21:46,880 --> 00:21:49,920
The reason I find this really interesting, there's a lot of people out there that have

376
00:21:49,920 --> 00:21:51,640
fairly rare blood types and such.

377
00:21:51,640 --> 00:21:57,200
And they might be on a list for no fault of their own for a particular reason and they

378
00:21:57,200 --> 00:21:59,200
need that in order to survive.

379
00:21:59,200 --> 00:22:02,680
And unfortunately, there's a sad incident, a car accident, something equivalent and someone's

380
00:22:02,680 --> 00:22:07,040
generous enough to make those organs go to somewhere and they need them.

381
00:22:07,040 --> 00:22:11,040
But if it's one side of the country and that one person has been waiting for like 10 years

382
00:22:11,040 --> 00:22:14,240
or something equivalent to five years for that particular surgery and doesn't get there

383
00:22:14,240 --> 00:22:17,280
because they missed a plane, it gives us an ice box.

384
00:22:17,280 --> 00:22:19,200
It literally saves lives.

385
00:22:19,200 --> 00:22:27,640
Well, that's the idea of them building this nationwide or US-wide network where they can

386
00:22:27,640 --> 00:22:33,480
just transport organs anywhere on their own planes with reserve capacity for what they're

387
00:22:33,480 --> 00:22:34,480
trying to do.

388
00:22:34,480 --> 00:22:35,480
So if you do have that...

389
00:22:35,480 --> 00:22:39,920
So an organ on one end of the country that becomes available that needs to be transported

390
00:22:39,920 --> 00:22:45,480
somewhere else, they can actually make that happen in a way that just wasn't possible

391
00:22:45,480 --> 00:22:48,000
when organs were kind of cooled.

392
00:22:48,000 --> 00:22:51,640
I think they've also been able to demonstrate they can improve the outcomes of the transplantations

393
00:22:51,640 --> 00:22:56,520
as well because there is some damage that goes on when you put things in organs in ice,

394
00:22:56,520 --> 00:22:57,520
which doesn't happen with them.

395
00:22:57,520 --> 00:23:02,880
This is a company, by the way, that dropped about 30%, 35% in the last few weeks.

396
00:23:02,880 --> 00:23:05,080
So it's fallen 35% in the last few weeks.

397
00:23:05,080 --> 00:23:08,000
It's probably one of the top performers the last 12, 24 months.

398
00:23:08,000 --> 00:23:11,200
But yeah, it had a big pullback along with a lot of these med tech companies.

399
00:23:11,200 --> 00:23:13,920
Why did it get pulled back?

400
00:23:13,920 --> 00:23:15,040
Across everything we looked at.

401
00:23:15,040 --> 00:23:20,120
So we bought quite a fair bit in the last couple of weeks of fast growing med tech companies,

402
00:23:20,120 --> 00:23:21,120
including TransMedics.

403
00:23:21,120 --> 00:23:25,080
I've been watching it, really just bought it in the last couple of weeks.

404
00:23:25,080 --> 00:23:29,760
Been watching it for the better part of a year.

405
00:23:29,760 --> 00:23:30,760
I think there's two things.

406
00:23:30,760 --> 00:23:33,040
I think it was a general pullback in med tech.

407
00:23:33,040 --> 00:23:36,160
And med tech has just had a charmed existence, really.

408
00:23:36,160 --> 00:23:39,200
It's been 10 years in one direction for a lot of these companies.

409
00:23:39,200 --> 00:23:43,640
I'm not just talking about small companies, big companies like Medtronic, Abbott, companies

410
00:23:43,640 --> 00:23:46,400
that make heart valves, companies that make these kinds of things.

411
00:23:46,400 --> 00:23:47,400
They all sold off significantly.

412
00:23:47,400 --> 00:23:49,920
And I think part of that was due to GLP ones.

413
00:23:49,920 --> 00:23:51,320
You know what investors are like?

414
00:23:51,320 --> 00:23:56,640
They see a theme and everybody jumps on it, whether it's long AI or short anything that's

415
00:23:56,640 --> 00:23:57,640
related to weight loss.

416
00:23:57,640 --> 00:24:01,760
Let's look at the portfolio that's not really working and let's take that capital and repurpose

417
00:24:01,760 --> 00:24:02,760
it.

418
00:24:02,760 --> 00:24:03,760
Yeah.

419
00:24:03,760 --> 00:24:07,100
And these are big ideas that you can really sink your teeth into that get people excited

420
00:24:07,100 --> 00:24:08,100
in one way or another.

421
00:24:08,100 --> 00:24:10,800
And I think there was an element of that with these GLP ones.

422
00:24:10,800 --> 00:24:14,560
It got to the point where I think it was only a week ago or two weeks ago where the Wall

423
00:24:14,560 --> 00:24:18,920
Street Journal wrote an article about companies that were stocks that were falling because

424
00:24:18,920 --> 00:24:24,880
they were GLP one related, which included Intuitive Surgical, Inspire, which is a sleep

425
00:24:24,880 --> 00:24:25,880
apnea.

426
00:24:25,880 --> 00:24:31,000
So you certainly got to the point where it was that newspaper article level of investor

427
00:24:31,000 --> 00:24:33,880
awareness, which sometimes marks reversals.

428
00:24:33,880 --> 00:24:38,160
What's the profit margin with GLP one?

429
00:24:38,160 --> 00:24:39,160
Pretty exceptional.

430
00:24:39,160 --> 00:24:43,920
I've got my notes somewhere, but you know, these things are on patents, they're extremely

431
00:24:43,920 --> 00:24:44,920
high.

432
00:24:44,920 --> 00:24:45,920
Yeah, right.

433
00:24:45,920 --> 00:24:48,840
Anything else happening in the life sciences?

434
00:24:48,840 --> 00:24:54,080
Yeah, I think one thing that's kind of we've been focused on is we had a company that we

435
00:24:54,080 --> 00:24:59,240
invested in our venture fund list on the ASX and it was kind of obviously a bit nerve wracking

436
00:24:59,240 --> 00:25:01,280
because very few companies are listing.

437
00:25:01,280 --> 00:25:03,680
A handful that have not performed well.

438
00:25:03,680 --> 00:25:07,920
This curve being kind of opened down significantly as well.

439
00:25:07,920 --> 00:25:12,600
Fortunately, over a few days, it's really back to its listing price, which was encouraging

440
00:25:12,600 --> 00:25:17,240
broadly because now we know that for the right company, the IPO market is in fact open.

441
00:25:17,240 --> 00:25:18,240
That capital market is not dead.

442
00:25:18,240 --> 00:25:22,240
And there's actually been a number of cap raisings in life sciences on the ASX in the

443
00:25:22,240 --> 00:25:23,240
last week or so.

444
00:25:23,240 --> 00:25:26,320
But I actually think this is one of the most exciting things that we're...

445
00:25:26,320 --> 00:25:29,520
What does Curvebeam do?

446
00:25:29,520 --> 00:25:33,600
Curvebeam develops weight bearing CT machines.

447
00:25:33,600 --> 00:25:38,520
So it's part of this trend, you know, if you step back a bit of, you know, if you go into

448
00:25:38,520 --> 00:25:43,000
an orthopedic surgeon and you need to get a scan, they'll generally send you off to

449
00:25:43,000 --> 00:25:45,000
somewhere else.

450
00:25:45,000 --> 00:25:47,120
And also typically you'll be lying down for this scan.

451
00:25:47,120 --> 00:25:51,180
So if you have a problem that relates to the way when you're standing up or moving around

452
00:25:51,180 --> 00:25:55,600
on your feet, which is actually how most things manifest, you won't be able to see that lying

453
00:25:55,600 --> 00:25:56,600
down.

454
00:25:56,600 --> 00:26:01,240
Curvebeam has created these high rise devices and they've sold 45 of them.

455
00:26:01,240 --> 00:26:03,720
They did 11 and a half million revenue last year.

456
00:26:03,720 --> 00:26:08,640
It can basically fit in orthopedics office and they can just do the scan there and charge

457
00:26:08,640 --> 00:26:11,800
for it and earn revenue from it as well.

458
00:26:11,800 --> 00:26:19,560
So it's kind of happened in dentistry where actually the CTO of Curvebeam, technological

459
00:26:19,560 --> 00:26:24,260
founder, developed things, device that could scan, 3D cone imaging it's called, that could

460
00:26:24,260 --> 00:26:28,920
scan you in the dentist clinic and very quickly get a 3D image of your face and your dental

461
00:26:28,920 --> 00:26:29,920
structure.

462
00:26:29,920 --> 00:26:32,280
It was extremely effective, sold thousands of units.

463
00:26:32,280 --> 00:26:36,080
And if you go to a dentist now, they'll probably image you in the clinic rather than send you

464
00:26:36,080 --> 00:26:38,960
off to some imaging center.

465
00:26:38,960 --> 00:26:41,800
So they're basically trying to do the same thing in orthopedics.

466
00:26:41,800 --> 00:26:46,160
I mentioned the 11 and a half mil of sales, that was done with a handful of sales staff.

467
00:26:46,160 --> 00:26:50,320
So one of the reasons it's exciting is they've done a deal with Striker, which is the number

468
00:26:50,320 --> 00:26:54,360
one provider of orthopedic equipment and it's also most of their revenues.

469
00:26:54,360 --> 00:26:59,400
They've done a deal where Striker will distribute their product and as part of that, will also

470
00:26:59,400 --> 00:27:02,640
offer extremely attractive financing terms to Curvebeam.

471
00:27:02,640 --> 00:27:07,600
So they'll go from a situation where you have a handful of people selling the device to

472
00:27:07,600 --> 00:27:11,280
over 500 reps globally pushing the device.

473
00:27:11,280 --> 00:27:18,440
The handful of people could sell 45 of these things, how many could 500 people sell?

474
00:27:18,440 --> 00:27:21,080
And that's kind of the interesting thing that we want to watch.

475
00:27:21,080 --> 00:27:24,440
So we're going to hold this as they roll out globally.

476
00:27:24,440 --> 00:27:27,760
And the other interesting aspect of it is they have some pretty interesting software

477
00:27:27,760 --> 00:27:31,040
modules that they can tack on to the device.

478
00:27:31,040 --> 00:27:32,040
Well that's what I was going to ask you.

479
00:27:32,040 --> 00:27:36,280
Are they just physically selling the devices as a one ticket item or is there an ongoing

480
00:27:36,280 --> 00:27:39,760
maintenance with a software program off the back or are they leasing?

481
00:27:39,760 --> 00:27:40,760
What's their business model?

482
00:27:40,760 --> 00:27:42,960
Yeah, so they sell them for $410,000 US.

483
00:27:42,960 --> 00:27:45,000
This is their flagship HiRise device.

484
00:27:45,000 --> 00:27:49,680
They have other devices, but this is where they get almost all their revenue at the moment.

485
00:27:49,680 --> 00:27:53,320
And the idea is they can actually scan people and charge.

486
00:27:53,320 --> 00:27:57,760
They will charge for the scan and actually the clinic will also charge for this.

487
00:27:57,760 --> 00:27:59,000
The clinic will charge for the scan.

488
00:27:59,000 --> 00:28:03,240
A lot of that will go to Curvebeam, but the clinic itself will make more revenue from

489
00:28:03,240 --> 00:28:04,240
having this device.

490
00:28:04,240 --> 00:28:10,400
So the payback period could be as low as one and a half years from that $410,000 or longer

491
00:28:10,400 --> 00:28:12,960
if you're doing less scans obviously.

492
00:28:12,960 --> 00:28:17,300
So it's a pretty compelling pitch for the orthopaedic surgeons to bring that revenue

493
00:28:17,300 --> 00:28:18,680
in-house.

494
00:28:18,680 --> 00:28:22,440
The other module they're developing, or key module they're developing is bone mineral

495
00:28:22,440 --> 00:28:24,840
density testing.

496
00:28:24,840 --> 00:28:29,600
So the moment that largely goes undiagnosed, even though it would have an effect on the

497
00:28:29,600 --> 00:28:30,600
way people are treated.

498
00:28:30,600 --> 00:28:36,840
So if a surgeon knows you have high fragility, they'll generally treat you differently.

499
00:28:36,840 --> 00:28:37,840
Maybe they'll put an extra plate in.

500
00:28:37,840 --> 00:28:41,480
It will certainly change the way they treat.

501
00:28:41,480 --> 00:28:45,240
Generally that testing is not done.

502
00:28:45,240 --> 00:28:49,160
So Curvebeam wants to basically add that as a module to their existing machines and also

503
00:28:49,160 --> 00:28:50,360
a new machine in development.

504
00:28:50,360 --> 00:28:54,320
So you basically put your hand in it and it runs that test.

505
00:28:54,320 --> 00:28:58,680
And then we'll very quickly give you a readout and a score that will enable people to diagnose

506
00:28:58,680 --> 00:29:00,480
you effectively for that.

507
00:29:00,480 --> 00:29:03,520
Bone mineral density is something that it's kind of got two issues.

508
00:29:03,520 --> 00:29:06,000
The first one is population-wide screening.

509
00:29:06,000 --> 00:29:08,760
So people know where they stand in this issue.

510
00:29:08,760 --> 00:29:14,040
And secondly, before surgery, you really want to get that data before surgery.

511
00:29:14,040 --> 00:29:16,720
And again, the beauty is they'll be selling these machines and they'll be able to do these

512
00:29:16,720 --> 00:29:21,440
tests off these machines, generate extra revenue for themselves, increase the economics for

513
00:29:21,440 --> 00:29:22,440
the people they're selling it to.

514
00:29:22,440 --> 00:29:24,720
And they've really just started rolling out.

515
00:29:24,720 --> 00:29:27,320
They've literally sold only 45 of these machines.

516
00:29:27,320 --> 00:29:32,120
I just recently watched the movie The Pursuit of Happiness of Will Smith and I was running

517
00:29:32,120 --> 00:29:33,120
around trying to sell those things.

518
00:29:33,120 --> 00:29:36,760
And I think he said that they're twice the cost of an x-ray and everyone was happy with

519
00:29:36,760 --> 00:29:37,760
an x-ray.

520
00:29:37,760 --> 00:29:38,760
So what's changed?

521
00:29:38,760 --> 00:29:39,760
Is that what it is?

522
00:29:39,760 --> 00:29:40,760
The bone density scanners?

523
00:29:40,760 --> 00:29:41,760
I'm not sure what he was referring to.

524
00:29:41,760 --> 00:29:42,760
Bone density scanners have been around for a while.

525
00:29:42,760 --> 00:29:43,760
Yeah, you can get these tests, but you could also, this just makes it much easier and the

526
00:29:43,760 --> 00:29:44,760
orthopaedic surgeon can do it in their clinic whilst they're testing for other things as

527
00:29:44,760 --> 00:29:45,760
well.

528
00:29:45,760 --> 00:29:46,760
So I think that's the beauty of bone density.

529
00:29:46,760 --> 00:29:47,760
So I think that's the beauty of bone density.

530
00:29:47,760 --> 00:29:48,760
So I think that's the beauty of bone density.

531
00:29:48,760 --> 00:29:49,760
So I think that's the beauty of bone density.

532
00:29:49,760 --> 00:29:50,760
So I think that's the beauty of bone density.

533
00:29:50,760 --> 00:30:04,320
So I think that's the beauty of bone density.

534
00:30:04,320 --> 00:30:11,080
I would describe it probably like an arm span wide, maybe a bit bigger than an arm span.

535
00:30:11,080 --> 00:30:14,800
And if you look at the high rise machine, it's kind of like a CT machine that kind of

536
00:30:14,800 --> 00:30:15,800
whizzes around you.

537
00:30:15,800 --> 00:30:19,280
It can be done in all kinds of different angles and orientations.

538
00:30:19,280 --> 00:30:23,840
But the key selling point or key point of differentiation is really that you're standing

539
00:30:23,840 --> 00:30:24,840
on it.

540
00:30:24,840 --> 00:30:29,840
So if you're scanning an ankle, you can see how the bones and tendons are aligned whilst

541
00:30:29,840 --> 00:30:34,040
you're actually standing on it, which is very different to when you're lying down.

542
00:30:34,040 --> 00:30:35,040
Yeah, right.

543
00:30:35,040 --> 00:30:36,040
That's interesting.

544
00:30:36,040 --> 00:30:40,160
Anything else in the life sciences you were saying or investing in or anything that's

545
00:30:40,160 --> 00:30:42,480
not working out that you're looking to get out of?

546
00:30:42,480 --> 00:30:47,320
I mean, our biggest loser this year, recently, has probably been one that's been kind of

547
00:30:47,320 --> 00:30:49,800
turning a hole in us for a while.

548
00:30:49,800 --> 00:30:52,920
It's funny how some of your best-performing one, stocks become your worst.

549
00:30:52,920 --> 00:30:58,240
But we held on to see limited, which proved to be certainly a short-term error because

550
00:30:58,240 --> 00:31:00,240
they just reported a result.

551
00:31:00,240 --> 00:31:03,160
We were kind of excited because they went from losing money to making money.

552
00:31:03,160 --> 00:31:07,640
It was a billion-dollar profit turnaround, adding roughly 500 million cash to the balance

553
00:31:07,640 --> 00:31:12,080
sheet each quarter from losing that amount.

554
00:31:12,080 --> 00:31:16,880
And in the latest result, they grew gross profits by 33%, which is not that bad.

555
00:31:16,880 --> 00:31:19,160
They had a huge cut in sales and marketing.

556
00:31:19,160 --> 00:31:23,280
They generate any growth at all when you're kind of cutting your sales and marketing by

557
00:31:23,280 --> 00:31:24,280
the extent that they did.

558
00:31:24,280 --> 00:31:25,280
It's quite an achievement.

559
00:31:25,280 --> 00:31:28,280
But they also made comments that they're going to return to growth strategy.

560
00:31:28,280 --> 00:31:31,760
In other words, they're going to spend some more money, which in their instance, which

561
00:31:31,760 --> 00:31:37,240
is kind of an e-commerce model, generally means discounts and kind of offers and basically

562
00:31:37,240 --> 00:31:40,280
money going or value going, more value going to consumers.

563
00:31:40,280 --> 00:31:41,880
So stocks sold off significantly.

564
00:31:41,880 --> 00:31:47,480
But at the same time, it looks like they're going to re-enter India with their gaming

565
00:31:47,480 --> 00:31:48,480
division.

566
00:31:48,480 --> 00:31:52,320
So if you're not familiar with this company, they had e-commerce division, extremely profitable

567
00:31:52,320 --> 00:31:53,320
gaming.

568
00:31:53,320 --> 00:31:59,160
Both of those divisions suffered from that post-COVID hangover, which hit both gaming

569
00:31:59,160 --> 00:32:00,160
and e-commerce.

570
00:32:00,160 --> 00:32:02,960
They also got banned from India, which is one of their biggest markets.

571
00:32:02,960 --> 00:32:07,480
And all of a sudden, they almost immediately lost all their gaming profits from India.

572
00:32:07,480 --> 00:32:08,480
Now they're going back.

573
00:32:08,480 --> 00:32:09,480
What was the game again?

574
00:32:09,480 --> 00:32:11,840
Wasn't it PUBG they owned the rights to?

575
00:32:11,840 --> 00:32:15,320
And then Fortnite came out and they figured, let's just mess with the two.

576
00:32:15,320 --> 00:32:16,320
Free fire.

577
00:32:16,320 --> 00:32:18,520
Yeah, and let's just marry the two and stick it on a mobile device.

578
00:32:18,520 --> 00:32:21,800
Because what they worked out is there's more people in the world with mobile devices than

579
00:32:21,800 --> 00:32:24,880
essentially a standalone PC or an Xbox.

580
00:32:24,880 --> 00:32:30,960
So they hit that second or third world market hard, played that game once.

581
00:32:30,960 --> 00:32:33,000
It's actually not bad for handheld devices.

582
00:32:33,000 --> 00:32:37,400
Not as good as Fortnite, but it's pretty good.

583
00:32:37,400 --> 00:32:43,560
The key opportunity that they saw was that they optimized it for low-end smartphones.

584
00:32:43,560 --> 00:32:44,560
Yeah, that's the one.

585
00:32:44,560 --> 00:32:45,560
They optimized it for low graphics.

586
00:32:45,560 --> 00:32:48,480
So let's say you want to make the best game possible, you're going to come up with something

587
00:32:48,480 --> 00:32:49,480
more like Fortnite.

588
00:32:49,480 --> 00:32:53,360
If you want to optimize it for lower end smartphones, you're going to come up with something like

589
00:32:53,360 --> 00:32:54,360
free fire.

590
00:32:54,360 --> 00:33:00,400
And that was a huge success throughout the developing world, India, Africa, South America,

591
00:33:00,400 --> 00:33:01,400
Asia.

592
00:33:01,400 --> 00:33:02,400
Yeah.

593
00:33:02,400 --> 00:33:05,320
And the good thing about that particular business model is it's not pay to win, it's pay to

594
00:33:05,320 --> 00:33:06,320
play.

595
00:33:06,320 --> 00:33:07,320
So it's cosmetic.

596
00:33:07,320 --> 00:33:11,440
So say the new Star Wars comes out or whatever's running at the time and you want to have that

597
00:33:11,440 --> 00:33:14,160
cosmetic character like cosplay, essentially.

598
00:33:14,160 --> 00:33:15,160
Kids would just purchase.

599
00:33:15,160 --> 00:33:20,720
So by kids, I mean, I'm 37.

600
00:33:20,720 --> 00:33:24,240
We grew up with all the Playstations and the Gameboys.

601
00:33:24,240 --> 00:33:28,080
So essentially our generation, when you're on a bus, you just want to do something.

602
00:33:28,080 --> 00:33:30,920
That's essentially the market and it doesn't stop.

603
00:33:30,920 --> 00:33:34,680
As long as the mechanics of the game is fine, if they continue to change, what's coming

604
00:33:34,680 --> 00:33:40,080
up, Father's Day, I don't know, pull out a freaking Father's Day, just go to something

605
00:33:40,080 --> 00:33:41,600
equivalent and off it goes.

606
00:33:41,600 --> 00:33:45,520
But so the biggest issue with that company was that was their main source of revenue,

607
00:33:45,520 --> 00:33:46,520
right?

608
00:33:46,520 --> 00:33:47,520
And they got banned from.

609
00:33:47,520 --> 00:33:49,240
Yeah, well, that was their main source of profits.

610
00:33:49,240 --> 00:33:51,200
So they did make some strategic errors.

611
00:33:51,200 --> 00:33:54,160
So at the top of the market, good thing they did, they raised a lot of money.

612
00:33:54,160 --> 00:33:59,760
The bad thing they did, they decided to go from Southeast Asia company and see to basically

613
00:33:59,760 --> 00:34:00,760
a global company.

614
00:34:00,760 --> 00:34:06,480
So they entered like Europe, e-commerce in India, big push into South America, and then

615
00:34:06,480 --> 00:34:09,600
all kind of went wrong all at once.

616
00:34:09,600 --> 00:34:13,920
Banned from India, lost those profits, gaming turned down, e-commerce turned down, and they

617
00:34:13,920 --> 00:34:17,680
just committed to this immense spending on investment.

618
00:34:17,680 --> 00:34:19,760
That was kind of the crunch that they got held up in.

619
00:34:19,760 --> 00:34:24,320
And then basically they slashed sales and marketing expense, but I think it was well

620
00:34:24,320 --> 00:34:26,840
over 50%.

621
00:34:26,840 --> 00:34:31,480
What needs to happen for that company to make a dramatic turnaround from the current?

622
00:34:31,480 --> 00:34:37,600
Well, it's going to be interesting because let's say they're annualizing 2 billion of

623
00:34:37,600 --> 00:34:42,200
profit at the moment.

624
00:34:42,200 --> 00:34:46,480
It's not clear yet what they mean by return to growth and how much they're going to spend.

625
00:34:46,480 --> 00:34:47,960
Will they spend all that in growing?

626
00:34:47,960 --> 00:34:54,440
And if so, the big question is, are they going to grow or is it just going to create a war

627
00:34:54,440 --> 00:34:59,920
with Alibaba and other people that compete with Southeast Asia?

628
00:34:59,920 --> 00:35:02,080
Yeah, in South America, Macadalibra.

629
00:35:02,080 --> 00:35:07,880
To be honest, that's probably an area they should probably exit.

630
00:35:07,880 --> 00:35:12,480
If the bull case is, it certainly helps that India is coming back.

631
00:35:12,480 --> 00:35:17,600
Gaming for the first time since this growth self began has returned to growth in the last

632
00:35:17,600 --> 00:35:18,600
few weeks.

633
00:35:18,600 --> 00:35:20,560
They are making a ton of money.

634
00:35:20,560 --> 00:35:23,920
They do have money they can invest and still be profitable.

635
00:35:23,920 --> 00:35:29,280
And they are number one in most of those countries in Southeast Asia that they operate in, in

636
00:35:29,280 --> 00:35:31,480
e-commerce.

637
00:35:31,480 --> 00:35:39,120
And these are young growing populations with increasingly high but still relatively undeveloped

638
00:35:39,120 --> 00:35:44,480
in terms of internet connection, mobile usage, e-commerce penetration.

639
00:35:44,480 --> 00:35:49,320
And so there's still that long-term thematic where C is probably best positioned to capture

640
00:35:49,320 --> 00:35:50,560
that.

641
00:35:50,560 --> 00:35:56,040
And now they're profitable and extremely well positioned to do that.

642
00:35:56,040 --> 00:35:58,600
So all the reasons that people did buy the stock originally are there.

643
00:35:58,600 --> 00:36:01,800
And I think the company is basically trading for where we bought it at.

644
00:36:01,800 --> 00:36:03,600
Well, here's a fun question.

645
00:36:03,600 --> 00:36:06,160
If you didn't own it, would you buy it today?

646
00:36:06,160 --> 00:36:08,480
I kind of wish I didn't own it until today.

647
00:36:08,480 --> 00:36:12,720
Yeah, that whole story, you know, went up eightfold.

648
00:36:12,720 --> 00:36:15,280
We've all owned it, I've owned that PA as well.

649
00:36:15,280 --> 00:36:19,560
And I swear what we bought it at, it sounds like something around all the way up to four

650
00:36:19,560 --> 00:36:20,560
dollars.

651
00:36:20,560 --> 00:36:25,800
Yeah, it was like, we bought it at 43 and it went up to 360 I think.

652
00:36:25,800 --> 00:36:28,920
And then it went down to 37, so basically down 90%.

653
00:36:28,920 --> 00:36:29,920
Yeah.

654
00:36:29,920 --> 00:36:31,880
But that run up was massive.

655
00:36:31,880 --> 00:36:34,960
And then essentially what Tencent got banned.

656
00:36:34,960 --> 00:36:36,680
And there was all that Hawaii stuff as well.

657
00:36:36,680 --> 00:36:38,960
And essentially it was just like, you know, we don't want to be associated with, West

658
00:36:38,960 --> 00:36:43,080
doesn't be associated with China and then it just got hammered.

659
00:36:43,080 --> 00:36:47,280
Yeah, well, I think, yeah, I mean, it's Singapore based company.

660
00:36:47,280 --> 00:36:52,880
I think it's one of those, the challenges of the last couple of years is that company

661
00:36:52,880 --> 00:36:55,080
has grown, you know, eightfold whilst we've owned it.

662
00:36:55,080 --> 00:36:57,600
And it's probably down, I think we bought it, our first shares were bought at 43.

663
00:36:57,600 --> 00:37:01,600
I think I read an article years ago, it was the fastest growing company, not just in China,

664
00:37:01,600 --> 00:37:03,880
like in the world at like for every particular year.

665
00:37:03,880 --> 00:37:04,880
Yeah, it was.

666
00:37:04,880 --> 00:37:08,240
And if you told me they were going to then be generating the profits they're generating

667
00:37:08,240 --> 00:37:13,880
now, the actual profits, forget the revenue and the user growth, you wouldn't have thought

668
00:37:13,880 --> 00:37:15,680
it would be down over those two years.

669
00:37:15,680 --> 00:37:16,680
But it is.

670
00:37:16,680 --> 00:37:21,000
It just makes me think it's mainly political that essentially drove that.

671
00:37:21,000 --> 00:37:24,760
So the reason I think it's markets, I think it's, if I describe it was just, it was just

672
00:37:24,760 --> 00:37:26,480
everybody's favorite stock.

673
00:37:26,480 --> 00:37:31,240
And it just had to like, it got way too hyped and then it got unwound.

674
00:37:31,240 --> 00:37:34,160
And a lot of us, myself included, that were like very committed, you know, we're going

675
00:37:34,160 --> 00:37:39,400
to be high conviction and we're going to take a five to 10 year view and hold them.

676
00:37:39,400 --> 00:37:45,440
And then companies like C just kind of really punished that view.

677
00:37:45,440 --> 00:37:48,960
And you know, fundamentally it's ahead of where you thought it would be.

678
00:37:48,960 --> 00:37:53,760
Well, let's use that lovely word hype and let's talk about what is the most hype thing

679
00:37:53,760 --> 00:37:55,440
in the market, which we kind of touched on before.

680
00:37:55,440 --> 00:37:59,040
And probably in my opinion, one of the only reasons the NASDAQ is up is this artificial

681
00:37:59,040 --> 00:38:00,120
intelligence.

682
00:38:00,120 --> 00:38:04,320
And I remember the beginning of the year, I was turning to my mates, you know, as advisors

683
00:38:04,320 --> 00:38:06,800
looking at where we're going to allocate for, you know, funds, et cetera.

684
00:38:06,800 --> 00:38:09,360
And I was like, this AI trade makes so much sense.

685
00:38:09,360 --> 00:38:13,240
But the question always is just like with any gold rush, you know, are you going to

686
00:38:13,240 --> 00:38:18,240
make more money in the tools or, you know, hunting that beautiful gold shiny ore?

687
00:38:18,240 --> 00:38:19,240
So what do you reckon now?

688
00:38:19,240 --> 00:38:20,920
It's had a huge run up.

689
00:38:20,920 --> 00:38:26,840
I'm seeing a number of people saying that Nvidia and Compasata were potentially more

690
00:38:26,840 --> 00:38:29,160
or less than they should be.

691
00:38:29,160 --> 00:38:35,040
Do you think it's a bubble forming or do you think this is only up and coming or do you

692
00:38:35,040 --> 00:38:39,360
think the play is predominantly, you know, in the manufacturing side on the chips like

693
00:38:39,360 --> 00:38:42,680
Nvidia or do you think the play is actually in the language models like Microsoft?

694
00:38:42,680 --> 00:38:43,680
What's your opinion?

695
00:38:43,680 --> 00:38:47,560
Look, I think there's a couple of things and that tools versus, you know, like the gold

696
00:38:47,560 --> 00:38:52,200
miners or the tool sellers or whatever our analogy is.

697
00:38:52,200 --> 00:38:55,960
It's kind of a split between the people who the companies that people are spending money

698
00:38:55,960 --> 00:38:58,820
on and the people raising money and spending that money.

699
00:38:58,820 --> 00:39:01,600
And so to this extent, there's a bubble that's probably in the companies that are raising,

700
00:39:01,600 --> 00:39:05,280
you know, hundreds of millions, billions of dollars and then spending it on chips.

701
00:39:05,280 --> 00:39:08,800
And then where you really want to be is the people who that money is being spent on.

702
00:39:08,800 --> 00:39:10,480
And there's reasons for that.

703
00:39:10,480 --> 00:39:16,720
I mean, it's very unlikely, I think, that there's going to be more than a few big winners

704
00:39:16,720 --> 00:39:17,720
here.

705
00:39:17,720 --> 00:39:21,680
And it's almost like instead of tools versus miners, it's probably more like David's versus

706
00:39:21,680 --> 00:39:22,680
Goliath's.

707
00:39:22,680 --> 00:39:25,200
And, you know, in tech, often it's been the Davids that have won.

708
00:39:25,200 --> 00:39:26,400
You know, you've had, think about like software.

709
00:39:26,400 --> 00:39:30,800
It was like these small, nimble software companies just making much more friendly consumer products

710
00:39:30,800 --> 00:39:34,880
winning over against these big, steady, you know, Oracle's and Microsoft's and things

711
00:39:34,880 --> 00:39:35,880
like that.

712
00:39:35,880 --> 00:39:38,560
Often, sometimes, often the Davids actually win.

713
00:39:38,560 --> 00:39:43,400
But in this case, it's crystal clear to me anyway, my personal view, it's an increasingly

714
00:39:43,400 --> 00:39:46,200
strong one is it's the Goliaths that are going to win.

715
00:39:46,200 --> 00:39:50,640
And the reason I think that happens is there's just, I think it's going to be, there's going

716
00:39:50,640 --> 00:39:51,640
to be three big winners.

717
00:39:51,640 --> 00:39:56,640
There's going to be Microsoft and OpenAI, and they're going to roll out, Microsoft will

718
00:39:56,640 --> 00:40:01,280
roll out AI across all of its products, you know, recommendations, ways to improve your

719
00:40:01,280 --> 00:40:04,160
slides, ways to summarize meetings with teams.

720
00:40:04,160 --> 00:40:07,880
They're going to use OpenAI's technology and increasingly others, but they're going to

721
00:40:07,880 --> 00:40:08,880
have a lock on that ecosystem.

722
00:40:08,880 --> 00:40:13,280
They're going to charge hundreds of millions of people, whatever it is, $30 a month.

723
00:40:13,280 --> 00:40:15,120
That's going to be an enormous revenue stream.

724
00:40:15,120 --> 00:40:21,000
They're going to invest that in, most likely in video, they'll foster a number two in AMD.

725
00:40:21,000 --> 00:40:24,520
Then you've got Google, which is kind of the sleeping giant who actually has their own,

726
00:40:24,520 --> 00:40:27,280
who developed all this, you know, foundational science behind this.

727
00:40:27,280 --> 00:40:32,280
And it was ex-Google people that then went and founded, or were mostly behind OpenAI.

728
00:40:32,280 --> 00:40:35,880
But Google is the only company that has like in a computing capacity to kind of compete

729
00:40:35,880 --> 00:40:37,680
with anybody at the moment in this space.

730
00:40:37,680 --> 00:40:41,080
They're developing their own chips called TPUs instead of GPUs.

731
00:40:41,080 --> 00:40:44,840
Instead of using Nvidia, they're using Broadcom for these.

732
00:40:44,840 --> 00:40:49,320
But there's a lot of people who use Gmail, Google Docs, and you know, that kind of Google

733
00:40:49,320 --> 00:40:50,320
suite of products.

734
00:40:50,320 --> 00:40:52,080
And so Google is a clear winner there.

735
00:40:52,080 --> 00:40:55,680
I don't think any of the other large language models are going to penetrate either of those

736
00:40:55,680 --> 00:41:02,680
domains, whether it's business, which mostly uses Microsoft or people or startups using

737
00:41:02,680 --> 00:41:07,320
startups, you know, kind of forward looking companies locked into Google's ecosystem.

738
00:41:07,320 --> 00:41:08,320
So I think they win there.

739
00:41:08,320 --> 00:41:13,520
And then the third player is like Meta, which is investing a huge amount and is open sourcing

740
00:41:13,520 --> 00:41:14,520
the whole thing.

741
00:41:14,520 --> 00:41:17,840
They're open sourcing all their models, which will, the next generation will probably be

742
00:41:17,840 --> 00:41:22,960
better than chat GPT or GPT-4.

743
00:41:22,960 --> 00:41:26,680
Which means that there's like a free source backed by one of these hyper scaling, you

744
00:41:26,680 --> 00:41:29,680
know, internet giants.

745
00:41:29,680 --> 00:41:32,920
And if there's a free source, then where does that leave everybody else?

746
00:41:32,920 --> 00:41:36,920
If you're trying to develop a language model or even a tool to compete with Microsoft that

747
00:41:36,920 --> 00:41:42,520
improves productivity, or even like say an image, are you going to compete with Adobe?

748
00:41:42,520 --> 00:41:43,520
You know, it's really hard.

749
00:41:43,520 --> 00:41:47,140
I really think that Goliaths are going to have a lock on this technology.

750
00:41:47,140 --> 00:41:49,640
In terms of where you want to invest, the good news is that the risk reward in these

751
00:41:49,640 --> 00:41:52,120
companies is generally pretty exceptional.

752
00:41:52,120 --> 00:41:56,440
You know, they're particularly because they have relatively low risk given cash bounces

753
00:41:56,440 --> 00:41:57,440
and profitability.

754
00:41:57,440 --> 00:42:00,600
What companies are you holding in the portfolio that's exposed to this space?

755
00:42:00,600 --> 00:42:07,200
We have a fair bit in the biggest ones we hold are ASML, AMD, and we did hold a lot

756
00:42:07,200 --> 00:42:08,200
of Nvidia.

757
00:42:08,200 --> 00:42:09,200
They've recently reduced that.

758
00:42:09,200 --> 00:42:16,200
The reason for AMD is we think they're going to, we're confident that big purchases of

759
00:42:16,200 --> 00:42:18,640
these chips are going to foster a number two.

760
00:42:18,640 --> 00:42:23,480
ASML we own because they make the machines that kind of make the chips.

761
00:42:23,480 --> 00:42:26,560
They did a lithography, like the really, which is really advanced technology.

762
00:42:26,560 --> 00:42:27,960
There's nobody else that does it.

763
00:42:27,960 --> 00:42:31,480
We thought really hard about Taiwan Semiconductor.

764
00:42:31,480 --> 00:42:35,760
In terms of where these chips are being made, they might be designed by Nvidia, AMD, or

765
00:42:35,760 --> 00:42:41,720
in the case of Google's GPUs or Meta's chips, they'll be designed by Broadcom.

766
00:42:41,720 --> 00:42:45,800
They're almost all going to be made by Taiwan Semiconductor.

767
00:42:45,800 --> 00:42:46,800
We don't own it.

768
00:42:46,800 --> 00:42:49,460
The reason we don't own it is because over the last two years we've been buffeted by

769
00:42:49,460 --> 00:42:50,800
headlines so many times.

770
00:42:50,800 --> 00:42:57,480
I'm just not comfortable yet about how you actually weigh up that risk of China and Taiwan

771
00:42:57,480 --> 00:42:58,480
flaring up.

772
00:42:58,480 --> 00:43:07,720
If you had to pick another one, the next biggest manufacturer is Samsung and Taiwan Semiconductor

773
00:43:07,720 --> 00:43:09,320
does four to five times as much.

774
00:43:09,320 --> 00:43:13,940
Well, I went to a fund manager, I don't know who it was, and he was discussing that essentially

775
00:43:13,940 --> 00:43:16,400
manufacturing in this space was his play.

776
00:43:16,400 --> 00:43:22,920
He was referencing a couple of companies I've never even heard of in Korea that are essentially

777
00:43:22,920 --> 00:43:25,880
making these chips for this particular space.

778
00:43:25,880 --> 00:43:27,560
I can't remember the names of them.

779
00:43:27,560 --> 00:43:29,440
The supply chain is pretty incredible.

780
00:43:29,440 --> 00:43:34,360
There's companies that just do cleaning of various phases of fabrication, or maybe they

781
00:43:34,360 --> 00:43:39,400
make the lenses, or they make the wafers.

782
00:43:39,400 --> 00:43:46,120
There's been a period of consolidation over the last probably even 20 years where there's

783
00:43:46,120 --> 00:43:47,360
really often only one.

784
00:43:47,360 --> 00:43:51,720
So, ASML, there's literally one person that makes this key machine that you need to make

785
00:43:51,720 --> 00:43:53,520
these advanced chips.

786
00:43:53,520 --> 00:43:57,360
Often, there'll only be two.

787
00:43:57,360 --> 00:44:01,400
These are extremely profitable companies that are all going to be the beneficiaries of this

788
00:44:01,400 --> 00:44:06,760
spend and it's going to be one of the biggest CapEx drives in history.

789
00:44:06,760 --> 00:44:10,440
I can completely understand why people do that, how people focus on those different

790
00:44:10,440 --> 00:44:11,440
companies.

791
00:44:11,440 --> 00:44:13,600
Funny enough, it's probably one way even a semiconductor index is probably a good way

792
00:44:13,600 --> 00:44:17,960
to play for most people because you get a mix of all those companies.

793
00:44:17,960 --> 00:44:20,000
So you will capture the winners.

794
00:44:20,000 --> 00:44:23,680
Invariably now, given the performance, it was going to be heavily weighted towards companies

795
00:44:23,680 --> 00:44:26,480
like Nvidia, which ultimately is probably...

796
00:44:26,480 --> 00:44:32,040
Yeah, I've been doing this for so long, but still always make the mistake of focusing

797
00:44:32,040 --> 00:44:34,160
on the number two and not the number one.

798
00:44:34,160 --> 00:44:37,600
Every time, almost every time you're almost bet off with the number one, it looks like

799
00:44:37,600 --> 00:44:41,360
Nvidia is trading on a 4P of something like 29.

800
00:44:41,360 --> 00:44:46,040
It's not expensive given the revenue growth that's going to come.

801
00:44:46,040 --> 00:44:49,680
And it's quite likely that the right call in semiconductors is the obvious call.

802
00:44:49,680 --> 00:44:51,160
It will be the number ones.

803
00:44:51,160 --> 00:44:53,840
It's the ASML, Taiwan semiconductor, Nvidia.

804
00:44:53,840 --> 00:44:59,160
If you go down the supply chain, it's probably people that have monopolies on key components

805
00:44:59,160 --> 00:45:05,080
where the money will have to go and they will capture some of that value.

806
00:45:05,080 --> 00:45:09,520
It's a very cyclical industry as well.

807
00:45:09,520 --> 00:45:14,240
So a lot of the purchase orders, many of them are real and be continued.

808
00:45:14,240 --> 00:45:18,320
So the hyperscalers, the Teslas buying Nvidia chips, Microsoft buying Nvidia chips, everyone

809
00:45:18,320 --> 00:45:21,320
buying these clusters, that's going to continue.

810
00:45:21,320 --> 00:45:25,120
But the startups that have raised a ton of money, which my view is unlikely going to

811
00:45:25,120 --> 00:45:32,560
have such a happy outcome, that looks like a hype cycle should probably end and that

812
00:45:32,560 --> 00:45:34,560
demand will probably be much more short lived.

813
00:45:34,560 --> 00:45:40,320
So you could easily be in a position in one, one and a half years where everybody is massively

814
00:45:40,320 --> 00:45:41,320
over ordered these chips.

815
00:45:41,320 --> 00:45:43,720
They come on the market and then as happened a number of times.

816
00:45:43,720 --> 00:45:44,720
We've seen this before.

817
00:45:44,720 --> 00:45:48,400
The crazy thing is we've seen this so many times in the last three years.

818
00:45:48,400 --> 00:45:51,080
You see it across every single industry.

819
00:45:51,080 --> 00:45:54,040
The good times, champagne pops, people doing deals at the top.

820
00:45:54,040 --> 00:45:56,960
And then essentially it just kind of dries up and everything crashes.

821
00:45:56,960 --> 00:46:01,080
And there's a couple of fund managers we quite like as well that only their entire business

822
00:46:01,080 --> 00:46:04,200
model is they wait for essentially, they don't participate in the firm.

823
00:46:04,200 --> 00:46:09,880
They wait for essentially the entire thing to crash and then the strongest member survives,

824
00:46:09,880 --> 00:46:11,240
the rest die.

825
00:46:11,240 --> 00:46:16,040
And as you said, they back the number one player in that space at ground zero and everyone

826
00:46:16,040 --> 00:46:17,040
hates it.

827
00:46:17,040 --> 00:46:19,560
And then they just wait patiently for five years and the thing rips.

828
00:46:19,560 --> 00:46:22,520
It requires a lot of money and a lot of patience to play that strategy.

829
00:46:22,520 --> 00:46:24,520
Yeah, I mean, even in...

830
00:46:24,520 --> 00:46:28,480
What do you reckon, what are the valuations currently?

831
00:46:28,480 --> 00:46:35,480
I haven't had a look this morning, but what's the valuations for these AI and computer chip

832
00:46:35,480 --> 00:46:36,480
companies?

833
00:46:36,480 --> 00:46:41,320
Are they to the point where they're overvalued currently?

834
00:46:41,320 --> 00:46:43,360
Are they in the forties yet?

835
00:46:43,360 --> 00:46:48,760
Whenever I hear valuations starting in the forties, I'm like, all right, boys, potentially

836
00:46:48,760 --> 00:46:50,400
time lock is the profits now.

837
00:46:50,400 --> 00:46:54,120
Like what's Taiwan's semiconductors trading at 9.5 times EBITDA.

838
00:46:54,120 --> 00:46:56,120
Nvidia is a forward P of 29.

839
00:46:56,120 --> 00:47:01,000
It's rich, but these kinds of thinking can be misleading.

840
00:47:01,000 --> 00:47:02,000
It's one of those...

841
00:47:02,000 --> 00:47:05,400
Because they're cyclical, so they'll always look great at the top and with amazing growth

842
00:47:05,400 --> 00:47:07,720
at the top and amazing forward P's.

843
00:47:07,720 --> 00:47:12,880
And often it's like when they're losing money that are the best times to own because it's

844
00:47:12,880 --> 00:47:13,880
just been this...

845
00:47:13,880 --> 00:47:16,800
Because that's when the industry is rationalizing and that's when there's much better years

846
00:47:16,800 --> 00:47:19,000
ahead.

847
00:47:19,000 --> 00:47:23,160
One thing we found is we obviously had one of the best track records and then had a horrific

848
00:47:23,160 --> 00:47:24,160
2022.

849
00:47:24,160 --> 00:47:30,040
So something that I've spent basically all this year is how could we have done better?

850
00:47:30,040 --> 00:47:35,280
How could we have captured most of those gains but not had such a drawdown?

851
00:47:35,280 --> 00:47:39,600
And it really comes down to risk management and developing really effective, simple risk

852
00:47:39,600 --> 00:47:45,240
models and applying those kinds of things to semiconductors is extremely effective.

853
00:47:45,240 --> 00:47:49,960
You actually generally generate much better returns throughout the cycle with lower drawdowns,

854
00:47:49,960 --> 00:47:52,800
which is rare and hard to find in finance.

855
00:47:52,800 --> 00:47:55,160
But the reason for that is they go through these enormous cycles.

856
00:47:55,160 --> 00:47:58,840
So you really want to be in them in the bull markets and out of them in the bear markets.

857
00:47:58,840 --> 00:48:03,720
If you tried that kind of strategy with a bank or utility, you would end up losing money.

858
00:48:03,720 --> 00:48:05,800
Well, let's touch on that a bit more because we were discussing...

859
00:48:05,800 --> 00:48:07,280
I think you showed me last week.

860
00:48:07,280 --> 00:48:08,480
It's really quite cool.

861
00:48:08,480 --> 00:48:14,000
You've actually developed a tool to tighten up that process.

862
00:48:14,000 --> 00:48:16,920
Get us up the mountain and then get us down the other side of life.

863
00:48:16,920 --> 00:48:18,720
So do you want to walk everyone through that?

864
00:48:18,720 --> 00:48:22,720
Yeah, it's not something I've really talked about much but...

865
00:48:22,720 --> 00:48:25,400
I'm not suggesting you have to make it public or anything.

866
00:48:25,400 --> 00:48:26,400
I'm just saying...

867
00:48:26,400 --> 00:48:27,880
I actually put it up on a website, chartchamp.ai.

868
00:48:27,880 --> 00:48:29,760
So I've been playing around with it.

869
00:48:29,760 --> 00:48:32,120
If you want to experiment with it, they can.

870
00:48:32,120 --> 00:48:39,880
The idea is basically the kind of areas that we invest in generally have these extraordinary

871
00:48:39,880 --> 00:48:40,880
rallies.

872
00:48:40,880 --> 00:48:44,600
There might be one to five year periods where they are the best performing companies and

873
00:48:44,600 --> 00:48:47,680
they've got three, four, five, 10 times.

874
00:48:47,680 --> 00:48:53,400
But they're also the kind of sectors that drop 65 to 90% every now and then, which is

875
00:48:53,400 --> 00:48:54,400
quite...

876
00:48:54,400 --> 00:48:55,400
There's a number of these.

877
00:48:55,400 --> 00:48:57,080
Bitcoin has done it.

878
00:48:57,080 --> 00:48:58,920
Semiconductors do it all the time.

879
00:48:58,920 --> 00:49:01,480
Commodities are very similar.

880
00:49:01,480 --> 00:49:05,700
High growth tech displays these characteristics.

881
00:49:05,700 --> 00:49:09,040
So what you really want to do is you're going to try and minimize your losses and then make

882
00:49:09,040 --> 00:49:14,560
sure that you have something A, that gets you back in if you sell and B, that can potentially

883
00:49:14,560 --> 00:49:18,400
keep you in if it is in fact one of those four year runs where everything goes up five

884
00:49:18,400 --> 00:49:20,800
times where you make real money.

885
00:49:20,800 --> 00:49:25,760
If you just do it because you think things are expensive or you think things are cheap,

886
00:49:25,760 --> 00:49:28,680
that's kind of really hard to do and you're probably going to get it wrong.

887
00:49:28,680 --> 00:49:30,000
Well, let's have a bit of fun with this.

888
00:49:30,000 --> 00:49:35,720
If you have it up there, why don't we look at a company and say exactly where it says

889
00:49:35,720 --> 00:49:37,760
you should be in, where you should be out.

890
00:49:37,760 --> 00:49:40,720
Yeah, let me have a look.

891
00:49:40,720 --> 00:49:41,720
So I'll put in one of these.

892
00:49:41,720 --> 00:49:47,200
Why don't we do C, which is close to my heart because it's such a big returner and then

893
00:49:47,200 --> 00:49:49,520
such a poor performer.

894
00:49:49,520 --> 00:49:53,600
So this kind of told you to buy in 2019 at 13.

895
00:49:53,600 --> 00:49:58,360
Then told you to sell it 255.

896
00:49:58,360 --> 00:50:00,280
After it hit the high, it come off a bit.

897
00:50:00,280 --> 00:50:01,680
It's well off the high.

898
00:50:01,680 --> 00:50:02,680
Yeah.

899
00:50:02,680 --> 00:50:04,680
But then obviously the market collapsed.

900
00:50:04,680 --> 00:50:10,360
If you ran the strategy of the life of the stock, you'd have made 48% with a 50% drawdown.

901
00:50:10,360 --> 00:50:16,880
The stock itself returned 18% from IPO per annum with a 90% drawdown.

902
00:50:16,880 --> 00:50:20,440
So you cut the drawdown to 53, which is borderline manageable.

903
00:50:20,440 --> 00:50:26,880
But you got a 48% CAGR and actually kept you out of the market for most of 2022, which

904
00:50:26,880 --> 00:50:28,880
is where that kind of benefit came.

905
00:50:28,880 --> 00:50:31,520
And you made 10 times your money instead of 2.7 times.

906
00:50:31,520 --> 00:50:34,800
Does this suggest to enter in the past?

907
00:50:34,800 --> 00:50:37,960
Actually, it said sell recently.

908
00:50:37,960 --> 00:50:44,360
And we've actually running these models across most of portfolio didn't about that time and

909
00:50:44,360 --> 00:50:46,160
then regretted it shortly after.

910
00:50:46,160 --> 00:50:49,360
We did it with, there's another company that we've been kind of intrigued by, which is

911
00:50:49,360 --> 00:50:53,120
Farfetch, which went from, I think we bought it 17.

912
00:50:53,120 --> 00:50:56,560
It went up to 65 and then down.

913
00:50:56,560 --> 00:51:00,760
And that gave a sell signal on this and we exited even though management was kind of

914
00:51:00,760 --> 00:51:05,200
coming out with some pretty old statements and claims and that has completely collapsed

915
00:51:05,200 --> 00:51:06,200
since.

916
00:51:06,200 --> 00:51:07,480
So it has saved us at least once.

917
00:51:07,480 --> 00:51:10,920
So how far had that stock fallen after you got it out of it?

918
00:51:10,920 --> 00:51:14,000
I'd say it would be down by more than 50%.

919
00:51:14,000 --> 00:51:15,000
Yeah, right.

920
00:51:15,000 --> 00:51:16,000
So it's quite sizable.

921
00:51:16,000 --> 00:51:22,960
The reason why this is so interesting is, as you said, this space is renowned for hot

922
00:51:22,960 --> 00:51:27,280
money, hot ideas, you know, and it's where all the excitement comes from, but you make

923
00:51:27,280 --> 00:51:30,440
money from getting out of it.

924
00:51:30,440 --> 00:51:33,160
As much as what, look, to be honest, I would just love to be just an investor.

925
00:51:33,160 --> 00:51:35,960
You buy these companies, leave them there for the grandkids and off you go.

926
00:51:35,960 --> 00:51:39,080
But unfortunately with the cyclical nature of some of these industries, it doesn't really

927
00:51:39,080 --> 00:51:43,320
behave that way, even though the company might be around for 30 years.

928
00:51:43,320 --> 00:51:44,320
Yeah, definitely.

929
00:51:44,320 --> 00:51:48,840
I mean, I think I was looking back at like some of the videos and stuff we put out a

930
00:51:48,840 --> 00:51:52,480
few years ago and the message was kind of like, look, there will be drawdowns every

931
00:51:52,480 --> 00:51:53,480
now and then.

932
00:51:53,480 --> 00:51:56,520
You know, there was the tech record, two and a half years down and then probably a similar

933
00:51:56,520 --> 00:51:57,520
amount of time up.

934
00:51:57,520 --> 00:52:01,840
But then the returns over like 10, 20 years were exceptional.

935
00:52:01,840 --> 00:52:06,680
And that's fine, but I'd say, you know, it's much easier said than done, isn't it?

936
00:52:06,680 --> 00:52:11,360
Given the last couple of years, you know, that two and a half years from 2000, 2002,

937
00:52:11,360 --> 00:52:16,760
I can see why, I can really see why that whole generation was scarred.

938
00:52:16,760 --> 00:52:19,800
You meant talk about changing behaviors earlier.

939
00:52:19,800 --> 00:52:21,320
Think about changing investors behavior.

940
00:52:21,320 --> 00:52:24,640
Everybody who went through that, just had a completely different perspective on things.

941
00:52:24,640 --> 00:52:27,840
Same with 2008, 2009.

942
00:52:27,840 --> 00:52:28,840
You could go two ways.

943
00:52:28,840 --> 00:52:32,360
You could go two negative and then miss the extraordinary boom afterwards.

944
00:52:32,360 --> 00:52:34,200
I think which is what a lot of people have done as well.

945
00:52:34,200 --> 00:52:38,480
Like you're too gunshot to get back in at the bottom, which is generally the wrong move

946
00:52:38,480 --> 00:52:40,560
because we've seen it all the time with cycles.

947
00:52:40,560 --> 00:52:43,920
The thing is, every cycle is exactly the same.

948
00:52:43,920 --> 00:52:48,560
It's just the variables on the next way up will be completely different.

949
00:52:48,560 --> 00:52:52,000
And what's crazy is everyone is discussing, oh, this one's going to go next.

950
00:52:52,000 --> 00:52:53,920
What a fine is like nine times out of 10.

951
00:52:53,920 --> 00:52:58,680
There's some random sector of the market that no one's even seen before.

952
00:52:58,680 --> 00:53:02,040
Then after it happens, everyone's like, oh yeah, I told you that one was going to happen.

953
00:53:02,040 --> 00:53:06,720
Well, the other issue is, and I think reason these price-based models can be so effective

954
00:53:06,720 --> 00:53:12,880
on risk is that the prices do move so much earlier than anything before anything actually

955
00:53:12,880 --> 00:53:14,160
really happens.

956
00:53:14,160 --> 00:53:17,360
And it might be, you know, the market just got, there's just less buyers and sellers

957
00:53:17,360 --> 00:53:18,360
all of a sudden.

958
00:53:18,360 --> 00:53:21,840
It might also be that the insiders, maybe they're not selling, but they've stopped buying

959
00:53:21,840 --> 00:53:25,480
or stopped telling their mates to buy because there's no, there's trouble coming.

960
00:53:25,480 --> 00:53:28,080
All these things kind of like feed into the price.

961
00:53:28,080 --> 00:53:33,600
Look, I think in terms of how we've changed our approach, we'll never go through a drawdown

962
00:53:33,600 --> 00:53:35,000
like that ever again.

963
00:53:35,000 --> 00:53:40,080
We really want to make sure that we're out of the market when we have to be.

964
00:53:40,080 --> 00:53:46,280
But that comes with making sure that you have a clearly defined way of getting back in.

965
00:53:46,280 --> 00:53:49,840
And then the good thing is all these tools, I built those with AI.

966
00:53:49,840 --> 00:53:53,160
There's no way I could have done this kind of coding exercise by myself.

967
00:53:53,160 --> 00:53:54,160
That's the most interesting thing.

968
00:53:54,160 --> 00:53:57,040
I was going to say before, there's always, you know, they were talking about, you know,

969
00:53:57,040 --> 00:54:01,080
manufacturing or the tool itself, but I was, I've actually found personally, even from

970
00:54:01,080 --> 00:54:04,880
what I do is doing number three, even all my clients, which I speak to, they're all

971
00:54:04,880 --> 00:54:06,200
in different areas.

972
00:54:06,200 --> 00:54:11,760
So many people use AI to essentially take a task that might take four, eight hours down

973
00:54:11,760 --> 00:54:14,520
to one, just officially improving their process.

974
00:54:14,520 --> 00:54:19,560
So I think what doesn't get discussed enough is the, what's the actual impact of some of

975
00:54:19,560 --> 00:54:24,240
these models just to improve normal human beings, day to day jobs.

976
00:54:24,240 --> 00:54:30,320
And how's that improving the underbelly of efficiencies across not just one, but every

977
00:54:30,320 --> 00:54:31,320
industry?

978
00:54:31,320 --> 00:54:33,960
I find that mind blowing.

979
00:54:33,960 --> 00:54:36,760
And I think also when it comes back to that demand side, like how real is it?

980
00:54:36,760 --> 00:54:37,760
Is it a bubble or not?

981
00:54:37,760 --> 00:54:41,760
You know, when, when all these, when everyone's using these AI, there's like a supercomputer

982
00:54:41,760 --> 00:54:45,280
whizzing out basically, you know, the other side of the planet or potentially close to

983
00:54:45,280 --> 00:54:46,280
us.

984
00:54:46,280 --> 00:54:50,680
But that computing demand is real and that's going to come, there's a handful of beneficiaries

985
00:54:50,680 --> 00:54:51,680
of that.

986
00:54:51,680 --> 00:54:55,080
So I think in terms of like the beneficiaries of the trend, it's going to be the companies

987
00:54:55,080 --> 00:54:59,400
that really capture the revenue from those and that immense increase in computing.

988
00:54:59,400 --> 00:55:03,760
You know, honestly, computing was probably a pretty safe bet before this, that computing,

989
00:55:03,760 --> 00:55:06,720
the demand for computing was going to go up over time.

990
00:55:06,720 --> 00:55:10,560
And in fact, semiconductors have generally been one of the best performing sectors, Albi

991
00:55:10,560 --> 00:55:12,800
also one of the most volatile.

992
00:55:12,800 --> 00:55:16,920
But now there's, there's like this extra demand that's going to come on because these things

993
00:55:16,920 --> 00:55:17,920
are so effective.

994
00:55:17,920 --> 00:55:22,200
And, you know, you can actually see computers think like I'm on Google barred, which for

995
00:55:22,200 --> 00:55:25,680
many things, cause it uses live data is much better than chat GPT.

996
00:55:25,680 --> 00:55:29,360
Certainly if you're doing research, let's say you want to, we're talking about Ford

997
00:55:29,360 --> 00:55:30,360
GLP ones.

998
00:55:30,360 --> 00:55:33,480
You just ask it, give us, give me the latest GLP one drugs by revenue.

999
00:55:33,480 --> 00:55:38,320
Give me the top five papers in 2022, 2023, 2022, 2021.

1000
00:55:38,320 --> 00:55:40,680
Were there any longterm studies lists those papers?

1001
00:55:40,680 --> 00:55:41,680
What were the key outcomes?

1002
00:55:41,680 --> 00:55:43,880
Um, tabulate all this data.

1003
00:55:43,880 --> 00:55:46,400
You know, Google barred will do that for you now.

1004
00:55:46,400 --> 00:55:48,200
Um, it's pretty, in fact, it's incredible.

1005
00:55:48,200 --> 00:55:49,200
And it'll save it all.

1006
00:55:49,200 --> 00:55:53,600
Well, it appears I'm about to switch from chat GPT to Google barred and give that a

1007
00:55:53,600 --> 00:55:54,600
go.

1008
00:55:54,600 --> 00:55:56,480
But the key point is you watch Google barred thing.

1009
00:55:56,480 --> 00:55:57,480
Like this is Google.

1010
00:55:57,480 --> 00:55:59,800
Imagine the compute power that Google has at its disposal.

1011
00:55:59,800 --> 00:56:05,400
I think about how fast and to make that more clear, think about how fast Google can like

1012
00:56:05,400 --> 00:56:07,520
index all of the world's knowledge.

1013
00:56:07,520 --> 00:56:10,640
You know, you type in something, it just happens almost instantly.

1014
00:56:10,640 --> 00:56:14,760
And now think of the fact where if I type the same thing that I typed into Google, but

1015
00:56:14,760 --> 00:56:18,480
literally went through basically, you know, crawled the world's information, type that

1016
00:56:18,480 --> 00:56:23,560
into their large language model and it takes them like 10, 20 seconds to think about it.

1017
00:56:23,560 --> 00:56:24,640
Like that's a computer.

1018
00:56:24,640 --> 00:56:29,000
That's the same speed, that same power computer probably is like thinking about that.

1019
00:56:29,000 --> 00:56:36,160
Um, which is why it's, which is why, you know, that, why we have such conviction on that

1020
00:56:36,160 --> 00:56:38,200
demand for computing power going forward.

1021
00:56:38,200 --> 00:56:41,840
It just blows my mind.

1022
00:56:41,840 --> 00:56:47,600
Any thing else that you've seen in reporting season that's performed well or something

1023
00:56:47,600 --> 00:56:49,200
that missed that you thought?

1024
00:56:49,200 --> 00:56:55,560
Look, I think reporting season was pretty solid across the board in the United States.

1025
00:56:55,560 --> 00:57:00,960
You know, the crazy thing is these, a lot of these companies are swung from being really

1026
00:57:00,960 --> 00:57:06,080
cheap in 2016 to like literally as expensive as they've ever been in 2021 to as cheap as

1027
00:57:06,080 --> 00:57:12,480
they've ever been some cases by a factor of 10, um, you know, over the last year, but

1028
00:57:12,480 --> 00:57:18,120
most of the companies we track and own every three months, they're 10 to 20% bigger than

1029
00:57:18,120 --> 00:57:19,120
they were.

1030
00:57:19,120 --> 00:57:20,720
And that has kind of continued.

1031
00:57:20,720 --> 00:57:25,400
Um, I think also you're now seeing pretty much every company in, or most of the, certainly

1032
00:57:25,400 --> 00:57:29,720
the companies that we like, uh, you're seeing huge increases in profitability over the reporting

1033
00:57:29,720 --> 00:57:30,960
season.

1034
00:57:30,960 --> 00:57:33,000
And actually some of that has come from high interest rates.

1035
00:57:33,000 --> 00:57:35,360
So sort of CrowdStrike and a couple of other companies.

1036
00:57:35,360 --> 00:57:38,920
A lot of these companies have billions of dollars of cash that are now earning five,

1037
00:57:38,920 --> 00:57:43,160
6%, which can be hundreds of millions of dollars, uh, which for a marginal company is all of

1038
00:57:43,160 --> 00:57:44,160
a sudden extremely meaningful.

1039
00:57:44,160 --> 00:57:47,960
So it's interesting to see that benefits of those high interest rates also flow through

1040
00:57:47,960 --> 00:57:48,960
to some of these companies.

1041
00:57:48,960 --> 00:57:55,240
Um, yeah, I guess locally we're most excited about curve beam, uh, and offshore we're really

1042
00:57:55,240 --> 00:58:00,080
tracking closely the semiconductor industry and the impact of the GLP ones.

1043
00:58:00,080 --> 00:58:04,280
Um, which I think is also really exciting and interesting.

1044
00:58:04,280 --> 00:58:05,280
Anything else?

1045
00:58:05,280 --> 00:58:07,080
Uh, that's probably about it.

1046
00:58:07,080 --> 00:58:10,600
I'm going to get him.

1047
00:58:10,600 --> 00:58:14,520
Well, favorite question I'd like to ask is, um, what keeps you up at night and what gets

1048
00:58:14,520 --> 00:58:17,280
you out of bed in the morning?

1049
00:58:17,280 --> 00:58:21,280
Uh, what keeps me up at night?

1050
00:58:21,280 --> 00:58:23,880
I mean, I feel like we went through, I feel like in our sector, the bomb kind of went

1051
00:58:23,880 --> 00:58:25,360
off last year.

1052
00:58:25,360 --> 00:58:29,360
You know, that was kind of like the, it was like the forest fire that burnt through like

1053
00:58:29,360 --> 00:58:33,840
20 years of undergrowth, you know, that had been building since 2000, 2002.

1054
00:58:33,840 --> 00:58:39,440
Um, it's a good question.

1055
00:58:39,440 --> 00:58:45,160
I think the way we're structuring things now, we've designed a process so that we're not

1056
00:58:45,160 --> 00:58:47,680
going to get caught in a drawdown the way we did in 2022.

1057
00:58:47,680 --> 00:58:51,120
So do sleep a bit easier in that regard.

1058
00:58:51,120 --> 00:58:54,040
Um, yeah, it's a good question.

1059
00:58:54,040 --> 00:58:59,760
I mean, personally we've seen inflation fall and interest rates stay extremely high, but

1060
00:58:59,760 --> 00:59:01,440
should that trend continue?

1061
00:59:01,440 --> 00:59:06,200
Interest rates will fall, the peak in valuations will be here, fast growing companies and you

1062
00:59:06,200 --> 00:59:09,640
know, we're typically investing in companies growing over 50%.

1063
00:59:09,640 --> 00:59:13,800
Their returns as they did for the 20 years prior to 2022 will be at least as good as

1064
00:59:13,800 --> 00:59:15,840
their organic growth rates have returned.

1065
00:59:15,840 --> 00:59:19,600
And that for us is a pathway out of this and, you know, being market leading performance

1066
00:59:19,600 --> 00:59:20,600
again.

1067
00:59:20,600 --> 00:59:25,000
Um, the downside of that would be if let's say for whatever reason, inflation continued

1068
00:59:25,000 --> 00:59:29,240
to spike up and actually interest rates had to go up another two, three, 400 basis points.

1069
00:59:29,240 --> 00:59:32,200
That would certainly give us another round of selling.

1070
00:59:32,200 --> 00:59:34,960
So that's probably, you know, one of the worst things that could happen.

1071
00:59:34,960 --> 00:59:36,520
So far we're not seeing that though.

1072
00:59:36,520 --> 00:59:40,120
You're actually seeing the opposite, seeing inflation fall and interest rates probably

1073
00:59:40,120 --> 00:59:41,120
peaking.

1074
00:59:41,120 --> 00:59:42,120
Um, is that helpful?

1075
00:59:42,120 --> 00:59:43,120
Is that enough?

1076
00:59:43,120 --> 00:59:48,720
I feel like I've done like two or three closing statements now.

1077
00:59:48,720 --> 00:59:49,720
Well that's great.

1078
00:59:49,720 --> 00:59:51,900
Um, well Michael, really good to have you on again.

1079
00:59:51,900 --> 00:59:57,160
And um, if anyone wants to learn more about Fraz's Capital Partners, where can they find

1080
00:59:57,160 --> 00:59:58,160
you?

1081
00:59:58,160 --> 00:59:59,160
Um, I'm on FrazCapitalPartners.com.

1082
00:59:59,160 --> 01:00:01,440
I'm on Twitter at Michael Frazes.

1083
01:00:01,440 --> 01:00:02,440
Uh, yeah.

1084
01:00:02,440 --> 01:00:03,440
Fantastic.

1085
01:00:03,440 --> 01:00:08,040
All right, Michael, we'll have you back on in 12 months to see how things are going and

1086
01:00:08,040 --> 01:00:09,040
really good to see you again.

1087
01:00:09,040 --> 01:00:10,040
Thanks, Murdoch.

1088
01:00:10,040 --> 01:00:11,040
We appreciate you having me on.

1089
01:00:11,040 --> 01:00:12,040
All right.

1090
01:00:12,040 --> 01:00:13,040
Have a good one.

1091
01:00:13,040 --> 01:00:39,760
Thanks for having me.

1092
01:00:39,760 --> 01:00:52,920
Thank you.