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Welcome back to the Rated Change with York Wealth Management. As

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advisors to some of the wealthiest families in the country, the

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Rated Change is a podcast designed to help you in the

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pursuit of building long term wealth through the insights of

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some of the brightest minds and asset management. I'm your host

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Murdoch Gaddy and in today's broadcast is speaking with James

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Williamson, the Chief Investment Officer at Wentworth Williamson

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about their equity fund and their stable income private

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credit fund. The equity fund is a go into a strategy investing in

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deep value Australian listed companies with roughly 60

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million of funds under management, whilst their stable

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income fund, which is a private credit fund targets are a

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return of 5% above RBO cash rate and has roughly 100 million of

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funds under management. If you're a value investor, then

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you may have had a very tough number of years investing in

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current markets with all this funny money being printed, and

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the growth that we're seeing. On this point, I think you're

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really going to benefit from James's experience and insights

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in this area. For me, the biggest question I've been

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wondering for years is has the winter finally finally thawed

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for Aussie deep value companies? James digs into how he thinks

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the health of a number of these companies in deep value territory

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and now healthier than ever. He discusses some specific

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companies like surf, or Fleetwood and other commodities

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like uranium, copper and gas. He also shares his outlook and

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what he thinks it means when value companies begin seeking

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mergers and acquisitions at the bottom of the market cycle,

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which they're currently doing right now for a number of them.

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Before we get into this conversation, please remember,

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this podcast is made for entertainment purposes only and

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not to be construed as any form of advice. I encourage you to

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listen to the disclaimer at the end of the broadcast and to keep

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your feedback coming. You can reach me at mgatty at ywm.com.au

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So with that being said, I hope you enjoy this conversation as

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much as I did. So sit back, relax and enjoy it. James

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Williamson from Wentworth Williamson. Welcome to the rate

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of change with York Wealth Management.

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Thanks, Merak. Very nice to be here.

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Great weekend, wasn't it?

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Yeah, absolutely. Wonderful weather. Let's enjoy it.

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Autumn's the best. Oh, it's fantastic. Yeah, we disappeared

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up the Kolo River, found a little creek. Kids had fun.

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Some absolute gentlemen put up a rope swing. What a fantastic

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weekend.

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Man brings back memories. My mind is not older now, but those

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are the best days. Soak it in.

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Absolutely. All right. Well, why don't you tell us a little bit

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about who James Williamson is?

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Yeah, perfect. And I think it will probably help to explain

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who I am because you are your genetics, and also your

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circumstances and environment. And so I came to this Australia

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in the late 90s. And I joined Mercatel mutual investment

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management. And in those days, they were golf manager, they

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were actually a growth manager. And not a surprise that for

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those couple of years, I mean, they were actually the best

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performing fund manager and they had a Z score. You know, the

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old Z score where you looking at earnings per share growth and

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averaging out the brokers and so forth. And it was the mark.

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It's the market environment. The late 90s is just work for that

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style. And I remember there wasn't all the fund manager

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there called Rainer Lubinsky. And I say, Rainer, please, can I

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do can I please do a models for you? Can I please do that's

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very interested in the nitty gritty. And he was a fabulous

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mentor. Very aggressive sort of young man always wanted to jump

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faster than what they were allowing me to do. And I

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couldn't jump here quick enough, but I was offered to run some

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sectors out of South Africa. So I did it and I've got an

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Australian wife so I convinced her it was a good idea. So

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hopped on a plane, had a little baby back then and we went to

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South Africa and arrived there. And of course, the whole tech

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boom blew up. And at the time, I covered consumer sectors. And I

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remember this whole thing and the Reserve Bank of Australia.

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The governor Christos he up the interest rates by 400 basis

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points to protect the currency and of course, just blew up the

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economy, but it was and yet this tech bus too. But I was very

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lucky for two respects. The one is as a sales side analyst,

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young one, I was doing it all sales side analysts do. I you

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watch the share price and you kind of manage your way you

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value them to be in touch with the share price and no disrespect

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to them is because if you you're out for too long, you're going

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to get fired. And so I was doing I was doing 10 year DCFs I

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thought I could forecast cash flows for 10 years and then I

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was doing P and then that was tanking even more and I was

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doing price to book all sorts of things. And that's what happens

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is you just try to explain what is going on at the time. And

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while I was there watching this very interesting time, this fun

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manager Alan Gray, you know, you're in Australia too. And

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they were the only one who stuck to their value strategy and they

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almost went bankrupt. And I think with this in perspective, I

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think Alan Gray when he passed away was the second which is

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South African. So it went from one extreme to the other and

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one client my understanding stayed with him, which was the

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Lewis family. And from what I hear the Lewis family was

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saying, please, just buy one tech stock, can't you just put

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one in your portfolio, just to try to hedge your position

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because they were getting carved out. And and they stuck to

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their knitting and you know, now I've gone back and I've assessed

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all the data but clearly after that 2000 era, there was a boom

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period for value. And I saw that as a young man and it was all

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those years. And and I was always very interested in the

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nitty gritty and that style. And from what I saw influenced me.

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The interesting thing is during those years, a lot of the young

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people wanted to be value managers because they saw this of

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course. And what we've just gone through, we've just seen the

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complete reverse. If you can find a young 20 something who

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really wants to be a value manager properly. They're like

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hen's teeth, you won't find them. But that for a few years,

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I was transferred to London by Societe Generale, the French,

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and I ran some consumer teams there, I did luxury goods, I

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did beverages, ran the beverage global team, the Diageo,

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Heineken, those sort of companies and traveled the

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world very interesting because they were consolidating the

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world, especially the beer companies going to emerging

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markets, that's where the growth was. And it worked extremely

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well for that period of time. And declining interest rates,

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they're leveraging up taking out costs, buying growth,

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essentially, and great experience. But then after a

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while with my children, then we're sort of nine, four years

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age, you need to make a decision where you want to live. And I

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came back to Australia just clean again, just no links. And

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you always think you've done well in your career until you

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come here as an immigrant, and then you back on your learners,

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you are, you know your place. And interviewed with this guy,

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Jeff Levy, who was CEO of Investec Bank, and is my is our

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chairs, my mentor for many, many years. And the chairman there

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was David Gonski at the time. And I remember interviewing

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with Jeff, and he said, What do you know? And I said, Well,

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pretty good at consumer and he goes, What the f would I need

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you? I'm not a consumer. But anyway, we actually hit it off.

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He's very, he's Jeff's very straight guy, he'll test you.

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And it's been a great learning experience. And back then, you're

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you're quite theoretical when you sit as a sales hard analyst,

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you just you're doing you're making calls, but you're not

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running money and you're not doing deals. So it gives gives

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you that edge. And so long story short, set up with the JV with

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Investec, opened a fund manager, value one, and actually the

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results were excellent for a couple of years and Investec had

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an Investec had an option to buy it and they bought it. And as

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soon as they bought it, they had a disagreement with London about

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who should they really own a value manager. And probably

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actually right not to own a value manager that point in

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time, but long story short, I knew the late Simone Marie quite

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well and effectively swallowed those funds. And I stepped across

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to Alan Gray for just a year. And you know, good friends told

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him that that's really once my own show and stepped out again,

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effectively with Jeff Levy and David Gonski supporting the

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initials and set up a joint venture and set the business up

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as an equity business, equity value. And you know, if you're

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going to set up a product, and you say you can do x y z in your

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information memorandum or your offer document, do that. You and

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I think that's how you you know, people can do as allocation and

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change from this to that. Great, they must do that. But your

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product, if you say you're gonna do this, stick to it. And so I'm

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a diehard value guy in there. That's what I do. And with

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hindsight, probably not great timing for that strategy, but I

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couldn't have done it any other way. And I did that for several

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years. And of course, interest rates were screaming down. And

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about six years ago, I saw interest rates coming down, I was

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selling my yield assets already, because I mean, I entered ale

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even after it had gone up a lot, and I made another 100% just

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quickly. And such an easy asset to own. And so I was putting out

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of those type of assets and had an opportunity to start which is

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very popular area now private credit funds. And it was my way

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of saying to my clients, I can give you yield. But I'm shifting

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out of my yield in this fund in equity fund, but I can give it

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to you here in a lot of clients. You know, you know, there's a big

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market for that a lot of clients just want stable unit price and

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just to get their monthly check, which is fair, but the equity

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fund is, is not that it's a different risk profile. And yeah,

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so you know, these are two, two quite niche strategies. And I'm

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very, very happy with with what I've got. I think if you're

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going to run a boutique business, you got to have

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something that's different. Otherwise, it'll be difficult to

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survive long term, I think.

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So Wentworth Williamson's got two funds, correct? Yes, it's

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got the equities. And it's got the landing. Yes. All right. So

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just I know you gave a very good overview, but just anyone

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listening so specifically, with the equity fund, what does it

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actually do? How does it run? And what are the mechanics of

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the fund?

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So I set this fund up quite interesting to say, because you

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always got to look at things commercially and how big you

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want to get it and so forth. And the equity fund wasn't like

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that. Equity fund. When I was talking to David and Jeff, and I

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remember David saying to me at the time, James, just run it

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like you run your own money. It is like that. And so how would

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you run your own monies? And I always said, well, if I could

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rattle off 10 plus companies that I really like, I'm

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probably doing quite well. It's not easy to do that. So I wasn't

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trying to be a typical small cap portfolio manager where his

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biggest position is 3%. And he owns 100 plus companies in

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there. And that's not right. And then you're turning quite often

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and you're moving it around. It wasn't like that at all. It was

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more like, okay, I'm going to, I'm looking at this company,

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it's got some assets on its balance sheet that are hidden,

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its ROE is quite low. I can see maybe on the cycle, I'm going to

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work with this company in three, four years time, I'm going to

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sell it out, but like private equity style. And that did, it

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did work for a time before before the pandemic, you know,

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half of my exits were takeouts. So play that and we definitely

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pushed, pushed it towards some of them getting taken out and we

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would do what is necessary on the board or whatever we needed

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to do to, to move it along. But yeah, so it was two things.

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Companies go through different cycles and you go through a

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period sometimes we've had a bad year and so forth. And then you

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can come back to what is a normal ROE. And then we either

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sell out or somebody comes and buys them. And we didn't have to

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buy small cap, we could buy anything. It just the cycle was

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small caps are just getting cheaper and cheaper and cheaper

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and cheaper. And we were just going, going, going, going for

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them. And our strategy is to be very fundamental. You know, with

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our IC, I can't, I can't take a paper. And I'm saying, well,

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this company is on 25 times earnings. It's growing

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modestly. And I think this is the best deal since last bread

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and it's generating very little cash flow. I'm just completely

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shot out of there. It's not what this fund is supposed to do.

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This fund is very old school. It's got to be trading on a

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decent earnings multiple must have a history of making money.

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Ideally, some assets on balance sheet and must be making real

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cash flow and I must be able to see that it could grow. That's

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it. And then I've got to go to my investment committee and

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persuade them. It's a great idea. So it's not a quick

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decision, where every day I'm just buying in certain stocks.

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It's not like that at all.

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So we'll get into the lending in a minute, but why don't we just

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unpack and dive into the equity strategy. So the equity

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strategies are go anywhere strategy, correct? Correct. And

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focuses predominantly on value, but in the small, smaller to

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mid sized companies. Okay, so what, how much money is

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currently in the fund now?

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And so about 60 odd million, and we've got no well over 100

232
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million in the credit fund.

233
00:15:12,240 --> 00:15:16,400
Okay. And then with the equities fund, what's capacity?

234
00:15:18,160 --> 00:15:22,920
You know, I always thought somewhere around 200 would be

235
00:15:22,920 --> 00:15:26,640
more than enough. And I would probably close it well well

236
00:15:26,640 --> 00:15:32,160
before then. And the reason is, if you want to go anywhere, like

237
00:15:32,160 --> 00:15:35,680
times like now, I feel you've got to go quite deep to get the

238
00:15:35,680 --> 00:15:41,080
numbers we want the multiples we want. And if you really want to

239
00:15:41,080 --> 00:15:45,920
do that, you're going to your size will kill you. It's okay,

240
00:15:46,040 --> 00:15:48,120
you might be able to get in, but then you probably won't be able

241
00:15:48,120 --> 00:15:51,440
to get out quick enough like you want to. So it is constrained.

242
00:15:51,440 --> 00:15:53,040
I always knew it was going to be constrained.

243
00:15:54,760 --> 00:15:57,040
To paint the picture for people that don't understand this,

244
00:15:57,280 --> 00:16:00,960
probably the easiest way to discuss it is probably so the

245
00:16:00,960 --> 00:16:04,640
market cap of some of those companies, right. And another

246
00:16:04,640 --> 00:16:07,880
way to potentially discuss it is some of these become thinly

247
00:16:07,880 --> 00:16:12,040
traded. So you can go stick, you know, you know, 100 200,

248
00:16:12,040 --> 00:16:14,840
half a million dollars on the position which want to get out.

249
00:16:15,040 --> 00:16:17,960
Because by the sound of you running a high conviction fund,

250
00:16:17,960 --> 00:16:22,160
right, small amount of companies, highly consolidated in

251
00:16:22,160 --> 00:16:25,160
those names. So if you're running $60 million, you know, I

252
00:16:25,160 --> 00:16:27,080
don't know what the average position is, what's the average

253
00:16:27,120 --> 00:16:28,760
percentages in a company?

254
00:16:30,560 --> 00:16:33,040
Yeah, yeah, absolutely. High single digit.

255
00:16:33,360 --> 00:16:35,840
Yeah, right. So it could be anywhere from 3 million to $6

256
00:16:35,840 --> 00:16:39,720
million in some of these companies. And then you have to

257
00:16:39,720 --> 00:16:43,040
manage that risk. So what's the market cap of some of these

258
00:16:43,160 --> 00:16:43,720
companies?

259
00:16:43,720 --> 00:16:48,640
So managing that risk to if you look at our top three positions,

260
00:16:48,640 --> 00:16:53,120
as example, they're all net cash balance sheets. You we manage

261
00:16:53,120 --> 00:16:56,080
our risk about okay, so we, you know, we don't want to go into

262
00:16:56,080 --> 00:16:58,240
these leverage companies, especially in the small cap

263
00:16:58,240 --> 00:17:02,000
land, because that's extremely dangerous. So we go there, we've

264
00:17:02,000 --> 00:17:04,040
got some hidden assets, you know, we go there, we've got

265
00:17:04,040 --> 00:17:08,040
levers, we've got things we can work with. And we know worst

266
00:17:08,040 --> 00:17:11,840
case if after two odd years, three years or so, and the

267
00:17:11,840 --> 00:17:14,280
management teams not getting to where we want them to go fast

268
00:17:14,280 --> 00:17:18,800
enough will agitate for a sale. So you protect your downside.

269
00:17:20,040 --> 00:17:22,680
From those kind of things. And often we have seen tremendous

270
00:17:22,680 --> 00:17:26,200
accidents, it's a lot of it's got to do with debt, which even

271
00:17:26,200 --> 00:17:30,560
when you want to talk globally, what will get you at the end is

272
00:17:30,760 --> 00:17:35,840
leverage. That's often the little thing that's going to

273
00:17:35,840 --> 00:17:39,320
come and take you out. So yeah, you got to be exceptionally

274
00:17:39,320 --> 00:17:44,720
careful, exceptionally careful with that. But you know, people

275
00:17:44,720 --> 00:17:48,440
are greedy, Murdoch, we all are. People like to make money if

276
00:17:48,440 --> 00:17:52,160
they can see a deal, and they can get enough momentum. You

277
00:17:52,160 --> 00:17:55,080
just you know, the it arrives, the volume arrives, you just

278
00:17:55,080 --> 00:17:58,320
got to get past that inflection point and people start and it

279
00:17:58,320 --> 00:18:02,440
is a bit like sheep, a couple go and then the others follow. I'm

280
00:18:02,440 --> 00:18:04,840
not a chartist, but I can understand why some of them can

281
00:18:04,840 --> 00:18:06,680
get it right, because they're picking up on these little

282
00:18:06,680 --> 00:18:09,440
nuances. And that's what happens.

283
00:18:10,880 --> 00:18:13,960
Well, let's let's just dig into a couple more of the numbers. So

284
00:18:13,960 --> 00:18:16,440
what's the beta of the of the portfolio? Do you think?

285
00:18:18,720 --> 00:18:22,600
Gosh, I'm probably people that don't know what beta is better is

286
00:18:22,600 --> 00:18:26,680
you know, how correlated the fund behaves in accordance with

287
00:18:26,920 --> 00:18:28,560
the probably quite,

288
00:18:29,640 --> 00:18:32,440
quite high, but interested in the first fund, which is

289
00:18:32,440 --> 00:18:36,440
exactly the same thing, it was very low. So so what I'm going

290
00:18:36,440 --> 00:18:39,320
back to it does depend on the environment. And

291
00:18:42,760 --> 00:18:47,080
and I think another thing to keep in mind is it's a bit of a

292
00:18:47,080 --> 00:18:50,480
silly comparison from an Australian context. And I did a

293
00:18:50,480 --> 00:18:55,240
lot of my career overseas. I mean, we are banks, big resource

294
00:18:55,240 --> 00:18:58,840
companies, and then probably a lot of property and that's it.

295
00:18:59,400 --> 00:19:01,280
Actually, that's that's a that's a good point. And we'll

296
00:19:01,280 --> 00:19:03,720
probably discuss a bit better. So in the portfolio, I'm just

297
00:19:03,720 --> 00:19:08,400
looking at Morningstar here. So the sectors you're in is basic

298
00:19:08,400 --> 00:19:12,360
materials, consumer cyclical, financial services, real estate,

299
00:19:12,480 --> 00:19:15,640
and then you got communication services, energy, industrial

300
00:19:15,640 --> 00:19:20,040
technology, and then consumer defense, healthcare utility. So

301
00:19:20,040 --> 00:19:21,320
you literally can go anywhere,

302
00:19:22,680 --> 00:19:25,920
which is quite interesting, interesting, but the what I

303
00:19:25,920 --> 00:19:28,200
wouldn't mind discussing, I need to paint the picture here a

304
00:19:28,200 --> 00:19:31,440
little bit for people listening is

305
00:19:31,440 --> 00:19:34,920
see, James is a very, very experienced manager, otherwise,

306
00:19:34,920 --> 00:19:37,120
I wouldn't have him on right, you know, respect him quite a

307
00:19:37,120 --> 00:19:39,720
lot. But what's interesting is if you go on to say Morningstar

308
00:19:39,720 --> 00:19:42,000
or anyone else, we're looking at the numbers, the one

309
00:19:42,000 --> 00:19:46,720
conversation which I really want to dig into today is the

310
00:19:46,720 --> 00:19:50,520
conversation about value managers, right? And then Warren

311
00:19:50,520 --> 00:19:55,000
Buffett is famous, a value manager. But what's been so

312
00:19:55,040 --> 00:19:58,320
interesting is ever since COVID happened, the launch of funny

313
00:19:58,320 --> 00:20:00,880
money into the market, everyone's like, Oh, this should

314
00:20:00,880 --> 00:20:04,840
be a reception or a recession. But, you know, technically, we

315
00:20:04,840 --> 00:20:07,120
haven't had one for a while, even though we technically did.

316
00:20:08,000 --> 00:20:11,960
Because I personally believe the phrase where, you know, a dead

317
00:20:11,960 --> 00:20:15,320
man doesn't pay his debts, right? So I don't know, as if

318
00:20:15,320 --> 00:20:18,960
the bigger players to be, you know, running this global, like

319
00:20:18,960 --> 00:20:21,280
the Black Rocks of the world, the Van Guys, the state streets,

320
00:20:21,280 --> 00:20:23,720
you know, have this thing, well, if we just keep everyone alive a

321
00:20:23,720 --> 00:20:26,120
little bit enough, you know, we can get more money out of them.

322
00:20:26,120 --> 00:20:28,240
So we're not going to kill them before the market goes again,

323
00:20:28,720 --> 00:20:30,800
I'd love to hear your opinion, what's really, really happening

324
00:20:30,800 --> 00:20:34,080
in that space. But to give you the numbers, James's portfolio

325
00:20:34,280 --> 00:20:40,920
2014 did 10.25% whilst the market in 1.29. 2015, they did

326
00:20:40,920 --> 00:20:47,000
20.31% whilst the market at 18.1. 2016, they did 15.64%. The

327
00:20:47,000 --> 00:20:54,280
market at 8.17, you know, six market in 18. 2018. Everyone was

328
00:20:54,280 --> 00:20:58,560
down, so down 20%. But the 2019, they bounced back at 20%. But as

329
00:20:58,560 --> 00:21:03,680
soon as the funny money came in, you just see the difference of

330
00:21:03,680 --> 00:21:06,480
the portfolio, the valuation, the valuation portfolio is done

331
00:21:06,960 --> 00:21:11,000
to 0.4 minus 10. Oh, yeah, you will please give the numbers.

332
00:21:11,000 --> 00:21:14,280
But it's just been you've had, you know, artificial

333
00:21:14,280 --> 00:21:18,160
intelligence, you've had all this, you know, growth at any

334
00:21:18,160 --> 00:21:21,200
price, you know, this this disparity between one side of

335
00:21:21,200 --> 00:21:23,960
the market compared to the other. And the other thing which

336
00:21:23,960 --> 00:21:26,000
I would love to hear your opinion as well, we've also seen

337
00:21:26,000 --> 00:21:29,640
the IPO and the deal raise sort of market completely dry up. And

338
00:21:29,640 --> 00:21:32,320
I was listening to a very respected another fund manager

339
00:21:32,320 --> 00:21:35,480
the other day at an event, who said that we really need a

340
00:21:35,960 --> 00:21:41,520
bull market in small valuation, you know, mid caps to happen

341
00:21:41,520 --> 00:21:44,680
again, before the deal side of the market gets up and going

342
00:21:44,680 --> 00:21:47,120
again. So I think the conversation which I really

343
00:21:47,120 --> 00:21:53,840
want to hear about is what is happening in the market? And

344
00:21:53,840 --> 00:21:56,640
where do you think it's going considering we're going to need

345
00:21:56,640 --> 00:22:00,040
a bull run for, you know, a lot of these deals to start coming

346
00:22:00,040 --> 00:22:00,640
through again.

347
00:22:01,360 --> 00:22:06,640
So I think that from the numbers will tell you that from 2013

348
00:22:06,680 --> 00:22:10,800
onwards, and especially from 2016, interest rates played a

349
00:22:10,800 --> 00:22:14,720
massive role, up until the pain up into the pandemic, that was

350
00:22:14,720 --> 00:22:19,560
the driving force of large cap, especially the tech, which is a

351
00:22:19,560 --> 00:22:24,400
which is kind of a boom period in VC was going off right. Everybody

352
00:22:24,400 --> 00:22:27,840
investing in VC that do the first round and then this second

353
00:22:27,840 --> 00:22:32,080
round, it'd be three times higher. Everybody was making

354
00:22:32,480 --> 00:22:37,000
enormous amounts of money seemingly. And that's what was

355
00:22:37,000 --> 00:22:42,680
happening. But I don't think from 20 from late 2019 or early

356
00:22:42,680 --> 00:22:45,920
2020 onwards, that was necessarily an interest rate

357
00:22:45,920 --> 00:22:49,760
driven thing for us. It certainly wasn't. I would say

358
00:22:49,760 --> 00:22:53,360
that we were, we were traveling, just traveling along before

359
00:22:53,360 --> 00:22:56,480
they hang in there with our numbers in with a wind in our

360
00:22:56,480 --> 00:23:02,400
face. But the pandemic, the pandemic was absolutely brutal

361
00:23:02,400 --> 00:23:05,440
for us. Because if you look at the way we invest in the way the

362
00:23:05,440 --> 00:23:08,240
way we say we're going to invest, we invest in business

363
00:23:08,240 --> 00:23:12,680
with a profitable history, low earnings, multiple assets on

364
00:23:12,680 --> 00:23:16,600
balance sheet, these kind of businesses generally require

365
00:23:16,600 --> 00:23:20,840
staff to come to work. And we are portfolios loaded with them.

366
00:23:21,480 --> 00:23:26,280
So when the pandemic came, and you know, you made the point

367
00:23:26,280 --> 00:23:30,280
that you need is fine margins on these things, I would say you

368
00:23:30,280 --> 00:23:32,800
can have very good results as long as seven out of 10 of your

369
00:23:32,800 --> 00:23:35,720
entities are doing well. You always know there's going to be

370
00:23:35,720 --> 00:23:39,520
a portion that's not doing well. That's your odds. When you have

371
00:23:39,520 --> 00:23:42,720
a thing like the pandemic come which, which hits all of your

372
00:23:42,720 --> 00:23:47,440
companies, your odds are over, you can kiss a goodbye. And then

373
00:23:47,440 --> 00:23:50,160
the first wave came through and then we were hanging on now you

374
00:23:50,160 --> 00:23:53,120
can say you can decide you can try and sell your assets small

375
00:23:53,120 --> 00:23:58,480
cap companies down when they've gone down and do that or you can

376
00:23:58,480 --> 00:24:01,120
wait and see how this thing goes. And then you had your

377
00:24:01,600 --> 00:24:04,240
second wave and we were all getting vaccinated and I was

378
00:24:04,240 --> 00:24:06,960
like, I don't know about these vaccinations, man, but I was

379
00:24:06,960 --> 00:24:10,400
like, Jesus vaccinate yourself because I need, I need these

380
00:24:10,400 --> 00:24:14,880
people to go back to work. And then they, they did that. And

381
00:24:14,880 --> 00:24:20,240
that took what two years. And then everybody got vaccinated

382
00:24:20,240 --> 00:24:24,080
two odd years. And I was like, thank God for that. Absolutely

383
00:24:24,080 --> 00:24:29,600
brutal. We lost one of our entities that does provide

384
00:24:29,600 --> 00:24:31,920
drugs to surgeries, I mean, he thought surgeries would go to

385
00:24:31,920 --> 00:24:39,360
zero. And they did. And in fact, haven't even recovered but and

386
00:24:39,360 --> 00:24:42,080
then Omicron was the worst. It was actually the worst of the

387
00:24:42,080 --> 00:24:46,880
lot is because people didn't go to work on their own. They made

388
00:24:46,880 --> 00:24:49,840
that decision. And it all got extended out and you didn't have

389
00:24:49,840 --> 00:24:53,760
governments, any government support. And I went in with net

390
00:24:53,760 --> 00:24:57,520
cash balance sheets and I exit off that three years of debt on

391
00:24:57,520 --> 00:25:01,920
my balance sheets. That's what happened. And with survival, it

392
00:25:01,920 --> 00:25:06,560
was just like, absolute, absolute survival, just hanging

393
00:25:06,560 --> 00:25:10,960
in there. And as I was saying now, looking at my companies,

394
00:25:10,960 --> 00:25:15,520
this last reporting season, I'm finally back. I have net cash

395
00:25:15,520 --> 00:25:18,640
balance sheets again, and my companies are growing. But it,

396
00:25:19,200 --> 00:25:21,840
it took time. It took time because you got to recover,

397
00:25:21,840 --> 00:25:26,720
you got to recover your positions. We had obviously,

398
00:25:26,720 --> 00:25:30,560
then the raging inflation came for a while too. But, but it's

399
00:25:30,560 --> 00:25:34,400
back and I go to the point about what what will make it move. I

400
00:25:34,400 --> 00:25:38,480
thought I honestly thought in late 2019, the market was going

401
00:25:38,480 --> 00:25:42,880
to be the environment was going to get tougher. It's all slightly

402
00:25:42,880 --> 00:25:45,360
ticking up at the 10 year bond rates, it just felt that things

403
00:25:45,360 --> 00:25:48,320
were tightening up. And the pandemic came and of course,

404
00:25:48,320 --> 00:25:52,480
they loosened monetary policy and everything just went wild.

405
00:25:52,480 --> 00:25:57,760
And you saw those tech or large cap tech and anything that

406
00:25:57,760 --> 00:26:01,200
sells anything online, obviously, rightfully so. I

407
00:26:01,200 --> 00:26:04,640
guess just went up a lot and some of them have come down

408
00:26:04,640 --> 00:26:10,000
except for the large cap. But I'm going to go back to people

409
00:26:10,000 --> 00:26:13,920
like greedy. Our companies did badly during that period of

410
00:26:13,920 --> 00:26:18,560
time because they deserve to do badly. That's the truth. Earnings

411
00:26:18,560 --> 00:26:25,600
were going backwards, negative cash flow and net cash balance

412
00:26:25,600 --> 00:26:29,440
sheets went into not carrying debt. It was it was right. It

413
00:26:29,440 --> 00:26:35,280
was I can say that it was an absolute shit show. And I look

414
00:26:35,280 --> 00:26:40,640
at those numbers and I'm saying what a miracle, honestly. And so

415
00:26:40,640 --> 00:26:45,840
if they can come back now, now that even more marginalized, if

416
00:26:45,840 --> 00:26:49,840
they were trading at 1112 P multiples now, now they're

417
00:26:49,840 --> 00:26:54,400
trading on nine, you know, leading into the pandemic. So

418
00:26:54,400 --> 00:26:57,440
they're more marginalized now, but now the cash flows coming

419
00:26:57,440 --> 00:27:00,400
back. And you guess what? When you go through a difficult

420
00:27:00,400 --> 00:27:04,560
time, you know what you do. You cut costs, you run lean, your

421
00:27:04,560 --> 00:27:08,080
CEO is probably not getting paid as much as he used to. He

422
00:27:08,080 --> 00:27:11,920
hasn't in manager five down, probably doesn't have got his

423
00:27:11,920 --> 00:27:15,440
personal PA anymore. They're watching their flights. They're

424
00:27:15,440 --> 00:27:18,960
not cutting down on their flights, going for deals. That's

425
00:27:18,960 --> 00:27:21,360
what people do. It's human nature. So their cost

426
00:27:21,360 --> 00:27:24,320
structures are they're running lean. It's an ideal situation

427
00:27:24,320 --> 00:27:26,720
when they have to run have the board, they really want to go

428
00:27:26,720 --> 00:27:29,520
by an expensive company right now and do a stupid acquisition.

429
00:27:30,320 --> 00:27:33,840
It's always possible. But the odds are now that they're

430
00:27:33,840 --> 00:27:37,120
looking to pay out his dividends, sometimes 100% straight

431
00:27:37,120 --> 00:27:40,320
out his dividend, fully frank, just to pay it out, be more

432
00:27:40,320 --> 00:27:43,120
sensible. Let's get our return on equity up. Let's go for a

433
00:27:43,120 --> 00:27:47,360
couple of years running this business really, really well.

434
00:27:47,360 --> 00:27:50,400
For a guy like me, that's music to my ears. So I've got to hang

435
00:27:50,400 --> 00:27:54,320
there with that. So even if we don't even if the big ass

436
00:27:54,320 --> 00:27:58,000
allocators don't say because I get it from them, I get it.

437
00:27:58,000 --> 00:28:02,480
They say, shucks, if I if I go back last year, I should have

438
00:28:02,480 --> 00:28:05,760
been in small caps already. You know, the data would tell me

439
00:28:05,760 --> 00:28:09,680
that. But they say, no, I don't want to be first. I mean, I

440
00:28:09,680 --> 00:28:13,600
could die for you. You know, this is their jobs. They don't

441
00:28:13,600 --> 00:28:15,840
want to go first. So I don't really mind somebody's going to

442
00:28:15,840 --> 00:28:18,240
go first and it will change. I don't know when I don't know if

443
00:28:18,240 --> 00:28:20,720
it's now I don't know if it's tomorrow's next month. But I do

444
00:28:20,720 --> 00:28:23,520
know that my company is on a vastly different position than

445
00:28:23,520 --> 00:28:26,240
what they were during that period of time. And if they do

446
00:28:26,240 --> 00:28:28,720
the right thing, and they pay dividends fully frank dividends,

447
00:28:28,720 --> 00:28:31,200
and they trade on those multiples, I'm going to be okay,

448
00:28:31,200 --> 00:28:37,840
my clients are going to be okay. And and we'll probably,

449
00:28:37,840 --> 00:28:39,680
probably do much better than some of the other things I see

450
00:28:39,680 --> 00:28:42,240
around there too. Because even if we go to this index that we

451
00:28:42,240 --> 00:28:46,400
are referring to, which is completely lopsided, you got to

452
00:28:46,400 --> 00:28:49,600
you got to have a look at the banks and have a look at some

453
00:28:49,600 --> 00:28:52,560
areas. I mean, this is absolute wonder that the consumer can

454
00:28:52,560 --> 00:28:56,320
survive like they are surviving. And even in my private equity

455
00:28:56,320 --> 00:28:59,840
space, a private credit space where you're playing, I mean,

456
00:28:59,840 --> 00:29:03,280
areas are ticking up, you can you can see it and depending

457
00:29:03,280 --> 00:29:08,240
where you are, if you sitting very exposed to the consumer

458
00:29:08,240 --> 00:29:11,280
side, I mean, you can see some signs. So it's going to be very,

459
00:29:11,280 --> 00:29:17,040
very interesting. On the resource side. I know, you know,

460
00:29:17,040 --> 00:29:21,120
like me, what almost impossible to determine where the iron

461
00:29:21,120 --> 00:29:22,960
oil price is going to go. So you tell me what the Chinese

462
00:29:22,960 --> 00:29:25,280
central government is going to do. But I'm not playing that

463
00:29:25,280 --> 00:29:29,360
game. It's too hard. Well, the people that I've had on and

464
00:29:29,360 --> 00:29:31,440
Marissa, with their opinion, I can see exactly what they're

465
00:29:31,440 --> 00:29:36,000
talking about. China might not be the, you know, the ugliest

466
00:29:36,000 --> 00:29:38,880
griller in the market are the biggest one, like the the

467
00:29:38,880 --> 00:29:42,800
demand that's coming out of India, with their growth, and

468
00:29:42,800 --> 00:29:45,360
the amount of met cold demand they have as well in the steel

469
00:29:45,360 --> 00:29:48,560
mills that they're burning their demands that they produce

470
00:29:48,560 --> 00:29:51,920
their own, but their demand is outpaced what they're producing

471
00:29:51,920 --> 00:29:55,520
domestically. So one one fund manager pointed out that last

472
00:29:55,520 --> 00:29:58,240
year that if you're in iron ore, you're very, very happy,

473
00:29:58,240 --> 00:30:01,760
even though, you know, all the headlines in China are quite

474
00:30:01,760 --> 00:30:05,760
ugly, courtesy of India. So, you know, sliding doors, one door

475
00:30:05,760 --> 00:30:08,960
closes and other door opens. But let's, I really want to

476
00:30:08,960 --> 00:30:11,680
call the Chinese Chinese punished call and they found

477
00:30:11,680 --> 00:30:14,320
other markets, as you know. Well, this is what I really

478
00:30:14,320 --> 00:30:16,960
want to discuss. And that's why I've got you on is I've always

479
00:30:16,960 --> 00:30:21,520
got a very simple philosophy when it comes to investing,

480
00:30:21,520 --> 00:30:25,840
which is markets are like elastic bands. The more you push

481
00:30:25,840 --> 00:30:28,640
something down, and and another fun manager, which I quite like

482
00:30:28,640 --> 00:30:31,680
phrased it very, very well. He goes, I love ESG. And they go,

483
00:30:31,680 --> 00:30:34,160
why do you love ESG? It makes no sense. He goes, No, no, no, I

484
00:30:34,160 --> 00:30:37,200
love ESG, because it makes no sense. And it makes people

485
00:30:37,200 --> 00:30:40,400
behave in ways which they shouldn't. And they sell assets

486
00:30:40,400 --> 00:30:44,640
like coal down to buggery, because it's the most ethical

487
00:30:44,640 --> 00:30:47,600
thing to do when it makes absolutely no sense. Because if

488
00:30:47,600 --> 00:30:51,360
you're forcing BHP or rare to sell coal assets, where are they

489
00:30:51,360 --> 00:30:53,360
going? They're just going into private equity. Do you think

490
00:30:53,360 --> 00:30:56,160
this private equity you're going to have, you know, much,

491
00:30:56,160 --> 00:30:59,680
you know, eco friendly logic at the end of this mind? No BHP,

492
00:30:59,680 --> 00:31:02,880
Rio, these big guys and girls who have the assets are probably

493
00:31:02,880 --> 00:31:05,680
going to be a lot better at making that land, you know, go

494
00:31:05,680 --> 00:31:09,280
back to the state before they got it. And the thing that from

495
00:31:09,280 --> 00:31:12,400
an investing point of view, one family manager, I really quite

496
00:31:12,400 --> 00:31:16,320
enjoy listening to they will only invest in a sector after

497
00:31:16,320 --> 00:31:20,080
it's had a huge spike, and then it's crashed. And to your point,

498
00:31:20,080 --> 00:31:23,360
which I'd love to hear more about your opinion, is, as you

499
00:31:23,360 --> 00:31:25,920
said, people are tightening the belt, it's when you're nearly

500
00:31:25,920 --> 00:31:30,960
dead. And you survive. And then you run lean, and then you

501
00:31:30,960 --> 00:31:34,160
improve your bidders practice practices, that there is

502
00:31:34,160 --> 00:31:37,680
probably the most interesting part about investing in a

503
00:31:37,680 --> 00:31:40,720
company, which you agree. But what I know, if you find it

504
00:31:40,720 --> 00:31:43,040
quite fascinating, but I find it fascinating, we do a lot of

505
00:31:43,040 --> 00:31:46,240
private equity work as well. And some of the deals we're seeing

506
00:31:46,240 --> 00:31:49,760
around now are so much better than covert times, all the

507
00:31:49,760 --> 00:31:52,560
funding money is in, but everyone feels poor. Everyone

508
00:31:52,560 --> 00:31:55,440
feels I can't take that risk. But you look back at the

509
00:31:55,440 --> 00:31:58,560
multiples and the dual prices, you know, a number of years ago,

510
00:32:00,160 --> 00:32:02,960
if you're a value guy, those numbers don't make sense. But

511
00:32:02,960 --> 00:32:05,680
everyone was rich, everyone's throwing money in deals. It just

512
00:32:05,680 --> 00:32:12,320
doesn't make sense. So, yeah, so and I suppose, yeah, I'll

513
00:32:12,320 --> 00:32:14,320
give you a question, right. So the biggest question I've got

514
00:32:14,320 --> 00:32:17,120
in my mind right now is we're looking at the Australian

515
00:32:17,120 --> 00:32:19,840
market, we're looking at the international market. We're

516
00:32:19,840 --> 00:32:24,960
seeing back to all time highs. It's frustrating, isn't it? Back

517
00:32:24,960 --> 00:32:27,200
to all time highs. So the question everyone's asking is,

518
00:32:27,200 --> 00:32:29,440
oh, my God, is it all time high? Should I buy and be

519
00:32:29,440 --> 00:32:33,120
investing right now? But the underbelly of these companies,

520
00:32:33,120 --> 00:32:35,520
which is, you know, why I've got you on James, I'd really like

521
00:32:35,520 --> 00:32:38,880
to hear your opinion is, yes, one part of the markets at all

522
00:32:38,880 --> 00:32:42,480
time highs. But do you think the health of the companies that

523
00:32:42,480 --> 00:32:45,840
haven't moved yet, they're in a better position now than they

524
00:32:45,840 --> 00:32:48,000
were during that COVID funny money times?

525
00:32:49,440 --> 00:32:52,480
Absolutely. And the other thing is, when we say these markets

526
00:32:52,480 --> 00:32:57,120
at all times high, it's very, it's very shallow. It's really

527
00:32:57,120 --> 00:33:00,560
the big, the big industry weights, which are driving that

528
00:33:00,560 --> 00:33:02,720
up, especially in the US. But we've seen it here too. I mean,

529
00:33:02,720 --> 00:33:07,120
look at CBA. CBA is a great ROE company. I'm not saying it's

530
00:33:07,120 --> 00:33:10,400
not an excellent bank, but it's not that good. There's other

531
00:33:10,400 --> 00:33:13,040
banks around the world that also have a similar ROE. And it's

532
00:33:13,040 --> 00:33:16,080
just wildly expensive on any metric and the money pours in

533
00:33:16,080 --> 00:33:18,720
there and you say to people the expense they go, I know it is.

534
00:33:19,440 --> 00:33:24,560
I don't want to click a capital gain. We have it here too. But I

535
00:33:24,560 --> 00:33:29,040
would say that this boom period is really in a selected number

536
00:33:29,040 --> 00:33:31,920
of companies that's driving the whole thing. I think if you dip

537
00:33:31,920 --> 00:33:35,200
down further down, a lot of companies aren't doing anything

538
00:33:35,200 --> 00:33:38,160
they're not the share prices are not moving, they haven't gone

539
00:33:38,160 --> 00:33:41,520
anywhere. And interestingly, I think a lot of them are actually

540
00:33:41,520 --> 00:33:45,520
doing okay. It's a little bit choppy. But there are a lot of

541
00:33:45,520 --> 00:33:48,880
them that are doing okay and they can't catch a bit. There's

542
00:33:48,880 --> 00:33:51,520
some big names that the same names you're always hearing and

543
00:33:51,520 --> 00:33:54,720
they're just collecting money and that's what's happening. And

544
00:33:54,720 --> 00:33:57,520
that's not healthy. That's not a healthy market. We know. I mean,

545
00:33:57,520 --> 00:34:00,960
we've been schooled all through the years to say, okay, is it a

546
00:34:00,960 --> 00:34:03,840
healthy bull run or is it an unhealthy bull run? And I will

547
00:34:03,840 --> 00:34:09,360
say it's unhealthy because of that fact. And you know, the

548
00:34:09,360 --> 00:34:14,000
same old my retail money falls in there last and you know,

549
00:34:14,000 --> 00:34:19,120
for mom and dad, maybe it happens again. I'm sure the

550
00:34:19,120 --> 00:34:22,160
market are going crackers now too, which is also interesting.

551
00:34:22,960 --> 00:34:25,680
You know, what's all this passive investing, you know,

552
00:34:25,680 --> 00:34:27,840
you just tick a box, I would like my money and growth

553
00:34:27,840 --> 00:34:30,320
balance and then the money goes into these companies. So it's

554
00:34:30,320 --> 00:34:33,280
just been gobbled up. But look, why don't we discuss a couple

555
00:34:33,280 --> 00:34:36,720
of companies. So you know, I'd love to hear you know, what

556
00:34:36,720 --> 00:34:40,960
you're holding in your portfolio. And more importantly,

557
00:34:41,600 --> 00:34:44,720
around this topic that, as you said, there is a lot of

558
00:34:44,720 --> 00:34:47,600
businesses that have been doing a tough they survived, they've

559
00:34:47,600 --> 00:34:50,400
come out the other side, probably substantially healthier.

560
00:34:50,400 --> 00:34:52,720
But as you said, they're finding it difficult to even

561
00:34:52,720 --> 00:34:56,960
catch a bit in this market. So I'd love to hear you know, what

562
00:34:56,960 --> 00:34:58,960
you're buying away, see the opportunities.

563
00:35:00,080 --> 00:35:04,640
So I'll give one which I still own, but I'm being told up in

564
00:35:04,640 --> 00:35:09,360
extenant. I'm sure they don't mind. Great management team

565
00:35:09,360 --> 00:35:12,080
done exceptionally well. But I want to explain how it works

566
00:35:12,080 --> 00:35:16,480
and how the more fun the margins are. We did MRM on the

567
00:35:16,480 --> 00:35:21,600
recapitalization in late 2019, I think it was. And this was a

568
00:35:22,720 --> 00:35:26,640
one billion market cap company, it was a darling. And you have

569
00:35:26,640 --> 00:35:30,080
these cycles. And of course, during the boom cycles in your

570
00:35:30,080 --> 00:35:33,840
your it's on ships, almost like a lot of the ships are almost

571
00:35:33,840 --> 00:35:37,360
like the freight trucks on the road that are transporting goods

572
00:35:37,360 --> 00:35:40,320
from one to another, but except you, you transporting goods to

573
00:35:40,320 --> 00:35:45,760
your oil rigs. And boom time, if you go back to 2012 was peak

574
00:35:45,760 --> 00:35:50,000
oil. Remember those days? Everybody, everybody said peak

575
00:35:50,000 --> 00:35:55,040
oil. And it's almost completely reversed. Now it's amazing how

576
00:35:55,040 --> 00:35:58,560
people just have this group think that and of course, this

577
00:35:58,560 --> 00:36:01,920
company was just getting better. And the CEO at the time

578
00:36:01,920 --> 00:36:05,600
decided it was a fabulous, fabulous time to do an

579
00:36:05,600 --> 00:36:11,440
acquisition and load up with debt. And and of course, it's

580
00:36:11,440 --> 00:36:14,560
the completely the wrong time to do an acquisition like that

581
00:36:14,560 --> 00:36:17,440
when your ROE is extremely high. And I argue with the company

582
00:36:17,440 --> 00:36:20,720
like that too. It's the wrong time to acquire them in the ROE

583
00:36:20,720 --> 00:36:23,440
is a high you should be acquiring them in the ROE is

584
00:36:23,440 --> 00:36:28,560
really low. But they did a couple of recaps over the years.

585
00:36:28,560 --> 00:36:31,360
And I got this phone call, which is rare for me to get a

586
00:36:31,360 --> 00:36:34,720
phone call from a broker offering me something good. It

587
00:36:34,720 --> 00:36:38,800
means he's been around town. He's tried everybody and

588
00:36:38,800 --> 00:36:41,760
everybody said no, no way. So I'm not going to that graveyard.

589
00:36:41,760 --> 00:36:46,720
So I got this call. And what intrigued me on it is it was a

590
00:36:46,720 --> 00:36:49,520
big one and you need to do a big one. And the banks were

591
00:36:49,520 --> 00:36:53,680
taking a haircut as well. And I thought if you're gonna try

592
00:36:53,680 --> 00:36:59,680
to revive these companies, you got to assume that the cycle is

593
00:36:59,680 --> 00:37:02,800
going to take and it could take much longer than you think.

594
00:37:02,800 --> 00:37:08,240
You got to set it out. And who does that with these days?

595
00:37:08,960 --> 00:37:12,960
There's not many. So again, our stylist, we prepared to we

596
00:37:12,960 --> 00:37:16,000
prepared to sit for a while if we think it's great value. And

597
00:37:16,000 --> 00:37:21,760
so we took a big piece of that recap. And significant

598
00:37:21,760 --> 00:37:26,000
discount to Triton down assets. And we do have a few which

599
00:37:26,000 --> 00:37:29,040
sounds like it's not similar to yours is that we think that

600
00:37:30,080 --> 00:37:34,720
carbon fuels still have a way to go. You can't just turn them

601
00:37:34,720 --> 00:37:39,040
off just like that. And so we felt that and we saw the capex

602
00:37:39,040 --> 00:37:42,720
going down year after year after year. We saw everybody's

603
00:37:42,720 --> 00:37:48,000
wants everybody went down ESG fund and hopefully as decent as

604
00:37:48,000 --> 00:37:51,680
the next guy but I can't pretend. I mean, I'll turn on my

605
00:37:51,680 --> 00:37:58,320
lights and I catch airplanes and so we took a view bought into

606
00:37:58,320 --> 00:38:02,400
that company and although we made, you know, as it currently

607
00:38:02,400 --> 00:38:06,720
speaks, six times our money but we've been selling out. It

608
00:38:06,720 --> 00:38:11,200
wasn't the ride that you may think is that for the first two

609
00:38:11,200 --> 00:38:15,120
years we were losing money. The pandemic came and I remember

610
00:38:15,120 --> 00:38:18,560
finding David, there's two David's there, the CEO and the

611
00:38:18,560 --> 00:38:25,200
CSO. I remember them saying, guys, geez, doesn't look good.

612
00:38:25,200 --> 00:38:27,920
How are things? He said, James, we can't man our ships.

613
00:38:29,520 --> 00:38:32,080
Couldn't get the crews to cross a border, get on the ship. They

614
00:38:32,080 --> 00:38:34,480
couldn't even manage ships to get out there. It's just

615
00:38:35,760 --> 00:38:39,680
unbelievably brutal. I was like, damn, you know, like to your

616
00:38:39,680 --> 00:38:44,720
point, like this is bad news on a small cap. Yeah, you sit it

617
00:38:44,720 --> 00:38:48,240
out. And I think was the position financially. How much

618
00:38:48,240 --> 00:38:52,960
money did you have in a couple of million dollars? Yeah. And

619
00:38:55,280 --> 00:38:58,960
so it was sitting around six mil, something like that. So,

620
00:38:58,960 --> 00:39:03,360
you know, he's not substantial. You took you recapitalize the

621
00:39:03,360 --> 00:39:07,040
third of the business. We were just under substantial, just

622
00:39:07,040 --> 00:39:15,200
under four point, whatever it was. And so that was it was an

623
00:39:15,200 --> 00:39:18,160
interesting time. And of course, but when it flips, and this is

624
00:39:18,160 --> 00:39:20,320
my point and some of these other companies, when it flips

625
00:39:20,320 --> 00:39:23,520
and you go through a death zone like that, it can pick up

626
00:39:23,520 --> 00:39:28,160
quite quickly. And then if you're not capital intensive,

627
00:39:28,800 --> 00:39:31,120
this is like that. We need to spend significant amounts of

628
00:39:31,120 --> 00:39:36,000
capex to expand, build new ships, very expensive. And of

629
00:39:36,000 --> 00:39:41,200
course, everything's gone up. Labor resource prices,

630
00:39:41,200 --> 00:39:43,920
everything to replace to put new ships on exceptionally

631
00:39:43,920 --> 00:39:47,600
difficult. So when the market turns, you you have this

632
00:39:47,600 --> 00:39:50,720
constrained supply and then and then the prices just rock it

633
00:39:50,720 --> 00:39:52,560
up. And that's what's happened. So their day rates are

634
00:39:53,120 --> 00:39:55,840
exceptionally high, very clear the guys, I have to say,

635
00:39:56,400 --> 00:39:58,800
obviously, we've got big offshore wind in our region too.

636
00:39:58,800 --> 00:40:01,920
And then they're changing also their business model to be more

637
00:40:01,920 --> 00:40:04,320
service orientated. So I think they've got a couple of years to

638
00:40:04,320 --> 00:40:06,560
go. And it's a miss me selling out is not saying they're not

639
00:40:06,560 --> 00:40:09,120
going to go up from here. Well, they can't do very well

640
00:40:09,120 --> 00:40:11,200
building their service business is just saying, you know, I

641
00:40:11,200 --> 00:40:16,320
went in for a certain story and. But these other guys, I could

642
00:40:16,320 --> 00:40:22,800
probably get some more upside. But but I said that that was that

643
00:40:22,800 --> 00:40:25,680
was a good story. But but the margins are fine. As I pointed

644
00:40:25,680 --> 00:40:31,200
out, it wasn't it's not always just a one way street. And so

645
00:40:31,200 --> 00:40:34,240
that's them. And another one I've got in there is this fleet

646
00:40:34,240 --> 00:40:39,200
word, it's something not what it's it. What I was looking for

647
00:40:39,200 --> 00:40:44,000
is also markets that have been had their time gone through a

648
00:40:44,000 --> 00:40:48,720
really bad time. And it's coming back again. And if you get that

649
00:40:48,720 --> 00:40:51,040
timing more or less right, and the timing more or less right

650
00:40:51,040 --> 00:40:54,640
could be a year or two. You're never going to get it that you're

651
00:40:54,640 --> 00:40:56,880
never going to build your position the day before it all

652
00:40:56,880 --> 00:41:00,080
changes. And if you do you, you're wrong, because you won't

653
00:41:00,080 --> 00:41:04,080
get enough of the stock at the price you want. But they've got

654
00:41:04,080 --> 00:41:08,320
a flying fly to tell this is Fleetwood up in Caratha and

655
00:41:08,320 --> 00:41:13,920
Caratha boomed in 2012 leading up to 2012 to remember, when

656
00:41:13,920 --> 00:41:16,320
even I worked at Investec, they were they were wheeling in

657
00:41:16,320 --> 00:41:19,840
their marketers, and that would fill 1000s of people's in

658
00:41:19,840 --> 00:41:22,240
auditorium. And they'll talk about China forever. This and

659
00:41:22,240 --> 00:41:25,520
that process were going crazy. It was that kind of market, you

660
00:41:25,520 --> 00:41:27,600
just pay anything. And

661
00:41:27,600 --> 00:41:30,800
I would I'm like, you remember the name, you said 2012. So I

662
00:41:30,800 --> 00:41:33,600
was at Shore and partners back then. And I'm the analyst,

663
00:41:33,600 --> 00:41:36,640
they're really good analysts, loved Fleetwood, and we make

664
00:41:36,640 --> 00:41:39,840
good money out of it on that run up something could be

665
00:41:39,840 --> 00:41:42,640
familiar with it. And then it just turned on a dime real

666
00:41:42,640 --> 00:41:43,120
quick.

667
00:41:43,120 --> 00:41:46,720
100% It was a well over a billion dollar market cap 1.3 was

668
00:41:46,720 --> 00:41:50,080
a bit of a darling. I watched Fleetwood to during that time

669
00:41:50,080 --> 00:41:54,320
I was at Alan Gray at the time. And again, I'm saying when a

670
00:41:54,320 --> 00:41:58,480
company is generating a very high return on equity. I

671
00:41:58,480 --> 00:42:00,640
generally don't buy I don't sometimes I don't buy

672
00:42:00,640 --> 00:42:03,040
especially a very cyclical industry, it's the wrong time.

673
00:42:03,040 --> 00:42:06,720
And that fly and fly to tell sitting at 100% occupancy

674
00:42:06,720 --> 00:42:10,480
rates. And then it went through a death zone where to set at

675
00:42:10,480 --> 00:42:14,640
30%. So the question is, if it's going to, you know, is it

676
00:42:14,640 --> 00:42:19,360
going up from here? And you know, hotel you have very high

677
00:42:19,360 --> 00:42:23,120
fixed costs. And so you're operating leverages. If you

678
00:42:23,120 --> 00:42:25,280
think your occupancy rates are going up again, you can earn

679
00:42:26,480 --> 00:42:30,640
four or five times your EBIT from 30, you know, it just

680
00:42:30,640 --> 00:42:35,120
delivers is enormous. And the disclosure was pretty terrible

681
00:42:35,120 --> 00:42:38,000
back back in 2012 days. But really, if you dig through the

682
00:42:38,000 --> 00:42:40,640
accounts, it's the fly and fly to tell that was driving that.

683
00:42:41,360 --> 00:42:44,080
And you look at it now, the last couple of years, they've

684
00:42:44,080 --> 00:42:48,000
been sitting at 30% occupancy making about 10 million bucks.

685
00:42:48,000 --> 00:42:51,680
And that $10 million is probably going to next year, next

686
00:42:51,680 --> 00:42:54,640
fiscal year, go to 25. Because they've signed a take or pay

687
00:42:54,640 --> 00:42:58,560
with Rio, which really goes into full throttle next financial

688
00:42:58,560 --> 00:43:04,240
year, takes them to about 50 odd percent occupancy rates. And

689
00:43:04,240 --> 00:43:06,960
the option is if anything else comes on top, then a lot of

690
00:43:06,960 --> 00:43:10,800
their profitability just falls. So that's a nice, it's a nice

691
00:43:10,800 --> 00:43:16,320
little play on activity up in that region. And I think it's

692
00:43:16,320 --> 00:43:21,840
a good way to look at it. And as it currently stands, there may

693
00:43:21,840 --> 00:43:24,240
well be a shortage of rooms. So it will be interesting to see

694
00:43:24,240 --> 00:43:27,280
how it plays out. But in either way, there's a step change in

695
00:43:27,280 --> 00:43:31,920
its earnings trajectory from next year onwards. Again,

696
00:43:31,920 --> 00:43:37,200
running it pretty lean, looks like a good operator there. And

697
00:43:37,760 --> 00:43:40,320
I say looks like is because that modern building, he changed

698
00:43:40,320 --> 00:43:43,200
the whole way that modern building is done, which could be

699
00:43:43,200 --> 00:43:46,560
a good thing. But the other thing that's interesting about

700
00:43:46,560 --> 00:43:50,160
the modern building division is he's geared it towards smaller

701
00:43:50,160 --> 00:43:55,840
ticket items doing social housing, rural housing, nursery

702
00:43:55,840 --> 00:44:00,560
schools, schools, that kind of repeatable manufacturing type

703
00:44:00,560 --> 00:44:05,520
work rather than trying to be a builder, if you know what I mean.

704
00:44:06,160 --> 00:44:08,480
So also very interesting space, obviously, there's going to be

705
00:44:08,480 --> 00:44:11,360
no shortage of demand over the next few years in that sort of

706
00:44:11,360 --> 00:44:15,360
way. So very interesting, significantly net cash balance

707
00:44:15,360 --> 00:44:20,160
sheet for a small market cap, roughly 20% of the market cap

708
00:44:20,160 --> 00:44:24,960
in franking credits. So bit of a conglomerate, there's a breakup

709
00:44:24,960 --> 00:44:31,040
story there too. Would there be private equity or others in

710
00:44:31,040 --> 00:44:34,400
time interested in the part? Sure, you could break it up. So

711
00:44:34,400 --> 00:44:39,680
it's that kind of thing. Very interesting. So it's in terms of

712
00:44:39,680 --> 00:44:42,800
the MRM, the parallel, I guess the fly and fly hotels

713
00:44:42,800 --> 00:44:45,680
interesting because, you know, you've got to go build

714
00:44:45,680 --> 00:44:48,880
potentially new houses up there that takes time. So there's a

715
00:44:48,880 --> 00:44:51,840
bit of a constrained supply story potentially up there as

716
00:44:51,840 --> 00:44:55,840
you move your occupancy rates up. So there's a time and a

717
00:44:55,840 --> 00:44:57,840
place and these cycles, they lost quite long.

718
00:44:59,760 --> 00:45:04,160
You also have a 12 point or based on the Morningstar numbers,

719
00:45:04,160 --> 00:45:07,200
2.4% of the portfolio technology, where do you find

720
00:45:07,200 --> 00:45:11,680
value in the tech market now? That blows my mind. Just

721
00:45:11,680 --> 00:45:14,560
because what's happening with Nvidia and all these companies,

722
00:45:14,880 --> 00:45:19,920
somebody else's. Is that correct? It says, it says you

723
00:45:19,920 --> 00:45:24,880
got technology 12 and a bit percent on Morningstar. No, no,

724
00:45:24,880 --> 00:45:28,000
that's that's wrong. Getting the numbers from of course, that

725
00:45:28,000 --> 00:45:32,080
did not be Morningstar's getting them out. 12.4% technology.

726
00:45:32,080 --> 00:45:34,160
So I'm just gonna I should just look at your fun fact sheet,

727
00:45:34,160 --> 00:45:41,120
not Morningstar. I mean, there's some people that can do

728
00:45:41,120 --> 00:45:43,680
these technology companies and they've able to get in and get

729
00:45:43,680 --> 00:45:47,760
out on time and value it and with no assets and value.

730
00:45:48,640 --> 00:45:50,720
That's why I was curious. I'm like, where in the world do you

731
00:45:50,720 --> 00:45:56,000
find value in tech right now? Anyway, no, so no, so no, that's

732
00:45:56,000 --> 00:46:00,880
not me. So we've got a big position in Fleetwood. We do own

733
00:46:00,880 --> 00:46:04,560
SIG Global. So we find some of these mining services companies

734
00:46:04,560 --> 00:46:08,400
are doing quite well. We chose them out of the others is

735
00:46:08,400 --> 00:46:13,600
because they've got a roughly 75% to their businesses, annuity

736
00:46:14,720 --> 00:46:17,680
asset services, they're growing quite quickly in that asset

737
00:46:17,680 --> 00:46:22,400
services space. So I like the predictability. I'm not a fan of

738
00:46:22,400 --> 00:46:24,960
the mining services where they do these big, large fixed price

739
00:46:24,960 --> 00:46:29,520
contracts because they can, they can kill you. You know, the

740
00:46:29,520 --> 00:46:32,720
management team and the board and about 10% of the business,

741
00:46:32,720 --> 00:46:36,720
they heavily invested back towards a net cash balance sheet

742
00:46:36,720 --> 00:46:42,640
growing at a very healthy tick sub 10 times free cash flow. So

743
00:46:42,640 --> 00:46:46,880
paying a good dividend, you know, ABC. That's what it is.

744
00:46:47,520 --> 00:46:53,440
And I guess I also I also like ALF's SurfCorp.

745
00:46:55,280 --> 00:46:56,480
SurfCorp. Yeah,

746
00:46:56,480 --> 00:46:59,520
I'll freeze it. Alpha is a good guy. I've used surf called for

747
00:46:59,520 --> 00:47:02,240
years. You should interview him. It'd be very colorful podcast.

748
00:47:02,240 --> 00:47:05,040
Yeah, no, he's I've met him a couple times. It's a very

749
00:47:05,040 --> 00:47:08,080
colorful character. And he's one of these guys that literally

750
00:47:08,080 --> 00:47:11,520
can control a room and he could march an army into battle

751
00:47:11,520 --> 00:47:14,240
without even flinching and everyone will follow him. He's

752
00:47:14,240 --> 00:47:19,200
just how he runs surf called is a really in business. And why

753
00:47:19,200 --> 00:47:21,600
I always found the surf corpse so fascinating, I love to hear

754
00:47:21,600 --> 00:47:24,640
you about it is the rise of what was that other company we

755
00:47:24,640 --> 00:47:28,080
work and how the guy just completely blew it up. And, you

756
00:47:28,080 --> 00:47:30,880
know, alpha the ability to kind of go down that trajectory and

757
00:47:30,880 --> 00:47:34,320
then just refused. And he just ran a very clean product, a

758
00:47:34,320 --> 00:47:38,080
good product that delivers everyone's happy. And the

759
00:47:38,080 --> 00:47:42,000
client state, it was less churn. Anyway, I'd love to hear

760
00:47:42,000 --> 00:47:45,840
your opinion. Yeah, in the industry. That's me that that's

761
00:47:45,840 --> 00:47:49,120
me that used surf called I physically use surf for I

762
00:47:49,120 --> 00:47:51,360
probably still have a membership during COVID when you

763
00:47:51,360 --> 00:47:54,800
were working from home. Like it was it was a fantastic service.

764
00:47:55,360 --> 00:47:59,360
100% does a good job. I mean, I wouldn't ordinarily go to

765
00:47:59,360 --> 00:48:01,680
that industry is a tough industry. I mean, your turn

766
00:48:01,680 --> 00:48:05,120
rates are just exceptionally high. But I've gone there

767
00:48:05,120 --> 00:48:08,160
because you've got to tap into this guy. And whatever you

768
00:48:08,160 --> 00:48:12,400
might think about, he knows how to run that business. He does.

769
00:48:12,400 --> 00:48:16,640
I mean, he made really good cash profits during the middle

770
00:48:16,640 --> 00:48:19,440
of the pandemic. I mean, it was just the guy's exceptional. He

771
00:48:19,440 --> 00:48:22,800
runs a very lean business. And he's also differentiated

772
00:48:22,800 --> 00:48:28,240
himself from the pack. And but before that, I'll explain the

773
00:48:28,240 --> 00:48:33,520
math and why I'm there, which is a business that typically

774
00:48:33,520 --> 00:48:36,240
doesn't own assets because all leases but this is the

775
00:48:36,240 --> 00:48:43,840
exception is this is a 300 odd million market cap company. And

776
00:48:43,840 --> 00:48:48,160
it's got about 120 130 million dollars unencumbered cash

777
00:48:48,160 --> 00:48:53,040
sitting on the balance sheet. It's very cash. It's just got

778
00:48:53,040 --> 00:48:56,000
exceptional amount of cash. And if you strip out the cash is

779
00:48:56,000 --> 00:49:01,760
trading five times, five times cash flow, roughly, if you strip

780
00:49:01,760 --> 00:49:06,160
out that cash, just under 10 times if you include it. So I

781
00:49:06,160 --> 00:49:10,480
mean, and why is that business that's got that kind of track

782
00:49:10,480 --> 00:49:13,840
or record trading at that? Once again, today was just

783
00:49:13,840 --> 00:49:19,280
marginalized. It's relatively small. Three floats relatively

784
00:49:19,280 --> 00:49:22,560
small and the big some of the big fund is the same is just

785
00:49:22,560 --> 00:49:26,160
too hard, or I can't get a big enough position, which is fair.

786
00:49:26,160 --> 00:49:30,480
You're running a 700 million dollar fund or billion dollar

787
00:49:30,480 --> 00:49:34,000
fund, you're going to go click away on surf core, probably not.

788
00:49:35,440 --> 00:49:39,040
But is it an amazing company to own? Yeah, you're going to get

789
00:49:39,040 --> 00:49:42,880
a very healthy dividend partially franked while you wait

790
00:49:42,880 --> 00:49:45,520
it's growing. It's actually growing quite quickly. And the

791
00:49:45,520 --> 00:49:48,160
trick with him just operationally look, he runs the

792
00:49:48,160 --> 00:49:51,520
business lean. He owns, I love these managers, they know how to

793
00:49:51,520 --> 00:49:56,880
run their business. Absolutely love it. He runs it very lean,

794
00:49:56,880 --> 00:50:00,480
but his model is on the floor. There's about five or six

795
00:50:00,480 --> 00:50:05,120
ladies, and they just clicking services. Can I do your

796
00:50:05,120 --> 00:50:08,080
printing? Can I do this? Can I do that? Can I do this? And if

797
00:50:08,080 --> 00:50:12,160
you look at his annual report, he doesn't make money on his

798
00:50:12,160 --> 00:50:15,280
long short on the leases, he makes money in the services. So

799
00:50:15,280 --> 00:50:18,960
they do a really good job. They do it really well. But you're

800
00:50:18,960 --> 00:50:21,040
going to pay for the services. If you want the services, you'll

801
00:50:21,040 --> 00:50:22,640
pay for it. But that's how they make their money. They are

802
00:50:22,640 --> 00:50:25,600
they are service business. And like you pointed out, they've

803
00:50:25,600 --> 00:50:29,040
got the office, they've got an excellent away from office

804
00:50:29,040 --> 00:50:31,280
where you can pretend if you're a smaller guy, you've got an

805
00:50:31,280 --> 00:50:34,320
office, but you don't really. You work from home, but you've

806
00:50:34,320 --> 00:50:38,080
got an office. And there's a lady they go Hello, this is x y z

807
00:50:38,080 --> 00:50:40,640
company. Can I help you take a message? So it gives a

808
00:50:40,640 --> 00:50:42,560
perception you've got a much bigger business and they do it

809
00:50:42,560 --> 00:50:43,360
exceptionally well.

810
00:50:43,920 --> 00:50:46,720
Yeah, but it's not just small businesses. It's big businesses

811
00:50:46,720 --> 00:50:49,520
like I still I generally still use it. And the main reason I

812
00:50:49,520 --> 00:50:52,560
use it the best way I can explain it is everyone knows

813
00:50:52,560 --> 00:50:55,840
fitness first, right? Fitness versus fantastic for one

814
00:50:55,840 --> 00:50:58,720
reason you can have a membership for Lane Cove, but I

815
00:50:58,720 --> 00:51:02,000
could go to any fitness first wherever it is any point in

816
00:51:02,000 --> 00:51:04,880
time. And if I just need to use the shower for the day or need

817
00:51:04,880 --> 00:51:06,800
a stamp or something equivalent, or just need to you know,

818
00:51:06,800 --> 00:51:09,920
place to whack out a laptop, it's just available. So of

819
00:51:09,920 --> 00:51:12,800
course, offices, they've got pretty much the number one bit

820
00:51:12,800 --> 00:51:16,480
of real estate in nearly every single state of Australia and

821
00:51:16,480 --> 00:51:20,240
over in Dubai, you know, and other countries. So you can

822
00:51:20,240 --> 00:51:23,600
just fly in, have a meeting to your point, right? So there's

823
00:51:23,600 --> 00:51:26,080
different memberships available. And the other way I

824
00:51:26,080 --> 00:51:28,800
look at it as well, everyone understands Airbnb. And one

825
00:51:28,800 --> 00:51:32,880
bringing that up is you might go pay rent, I don't know, for a

826
00:51:32,880 --> 00:51:35,520
townhouse, and I don't know, an apartment overlooking the

827
00:51:35,520 --> 00:51:38,640
water, and that's costing you $1,000 a week. If you take that,

828
00:51:38,640 --> 00:51:42,000
and proceeded to a short term stay on that, the multiples just

829
00:51:42,000 --> 00:51:47,200
go up extraordinarily. So if you take what ServCorp is a very

830
00:51:47,200 --> 00:51:50,320
small office in there, the numbers which you're paying are

831
00:51:50,320 --> 00:51:53,920
potentially double or sometimes triple what you ideally could

832
00:51:53,920 --> 00:51:56,400
get down the street, but you have to lock physically lock

833
00:51:56,400 --> 00:51:59,040
into a three or five year contract to get those numbers.

834
00:51:59,760 --> 00:52:04,080
ServCorp is month to month. Yeah. And then yes, as you said,

835
00:52:04,080 --> 00:52:07,360
you essentially have the ability to get all the the ladies in

836
00:52:07,360 --> 00:52:11,200
that office to, you know, do services for you. When

837
00:52:11,200 --> 00:52:14,640
ordinarily you have to go hire a staff member for anywhere from

838
00:52:14,640 --> 00:52:18,240
I don't know 70,000 up to like $120,000 just to physically do

839
00:52:18,240 --> 00:52:22,240
that and it's you're paying per. And the other thing as well,

840
00:52:22,240 --> 00:52:27,440
which people don't realize is it's a phenomenal place to meet

841
00:52:27,440 --> 00:52:30,160
people. And I would actually say it's very tied into the

842
00:52:30,160 --> 00:52:34,720
startup community. The startup community is huge there, lawyer,

843
00:52:34,720 --> 00:52:37,440
and the other thing is people a lot of people use it as their

844
00:52:37,440 --> 00:52:40,640
plan B, I had a friend that had their office flight, a lawyer,

845
00:52:40,640 --> 00:52:44,000
very prominent lawyer. That's how I met her. It flooded all

846
00:52:44,000 --> 00:52:46,720
the generators went out, kind of like Fukushima, you know, you

847
00:52:46,720 --> 00:52:48,720
know, they put the diesel generators down in the basement

848
00:52:48,720 --> 00:52:53,200
just made no sense. But she was there for six months. And then

849
00:52:53,200 --> 00:52:57,200
and then another gentleman you mentioned, you know, a shipping

850
00:52:57,200 --> 00:52:59,280
container company, there's another gentleman, which I know

851
00:52:59,280 --> 00:53:02,160
that's one of the most prominent shipping companies.

852
00:53:02,160 --> 00:53:04,560
Running on the sorry on the container side, he runs this

853
00:53:04,560 --> 00:53:07,760
entire office out of surf called why it doesn't need an office,

854
00:53:07,760 --> 00:53:10,320
but he's always going into every single state for meetings

855
00:53:10,320 --> 00:53:13,600
and meetings and meetings. So yeah, no, it's a very interesting

856
00:53:13,600 --> 00:53:16,640
business. It's a huge cash flow business. But the last point I'll

857
00:53:16,640 --> 00:53:19,120
finish, I'd love to hear your thoughts is the virtual

858
00:53:19,120 --> 00:53:24,240
assistant I think has so that the virtual office choice, and

859
00:53:24,240 --> 00:53:26,800
the ability is this culture now where you can work from

860
00:53:26,800 --> 00:53:29,440
anywhere as long as you have a laptop and then but you have a

861
00:53:29,440 --> 00:53:32,240
essentially a business face, I think it's really driving that

862
00:53:32,240 --> 00:53:32,800
business.

863
00:53:33,760 --> 00:53:36,640
Absolutely. And you're right. I mean, I've just had a meeting

864
00:53:36,640 --> 00:53:40,320
with him and that's going quickly. It's almost like

865
00:53:40,320 --> 00:53:43,440
surf corp is a good example of what's happened in the market.

866
00:53:43,440 --> 00:53:46,960
So you can go IWG or whatever, I have a Steve massively

867
00:53:46,960 --> 00:53:52,160
leveraged balance sheet, plus 20 times earnings. And, and yeah,

868
00:53:52,160 --> 00:53:55,360
you got a business which is far better run. And this business,

869
00:53:55,680 --> 00:53:57,760
if you look through its history, they're only going to be

870
00:53:57,760 --> 00:54:00,400
a few years. If you look through its history, the overseas

871
00:54:00,400 --> 00:54:02,480
some of the overseas peers, they go through periods where

872
00:54:02,480 --> 00:54:04,720
they make big losses, and they're making money and losses

873
00:54:04,720 --> 00:54:09,040
and leverage and scary. He's got none of that. It's it. He's,

874
00:54:09,920 --> 00:54:12,400
in my mind, from what I've seen running the best service office

875
00:54:12,400 --> 00:54:15,360
business in the world, and he's been doing so for a long time.

876
00:54:16,160 --> 00:54:19,760
And so the I guess the question is now what now? What now for

877
00:54:19,760 --> 00:54:24,560
him? So the other thing is, it's quite interesting what he wants

878
00:54:24,560 --> 00:54:27,360
to do the Saudis Saudi Arabia, you know, he's got a big Middle

879
00:54:27,360 --> 00:54:30,720
East business. A lot of peers aren't going into the Middle

880
00:54:30,720 --> 00:54:32,880
East, and he has been going in there for quite some time, and

881
00:54:32,880 --> 00:54:35,760
he's killing it. And he's talking about maybe listing

882
00:54:35,760 --> 00:54:38,960
this partially listing the Saudi and European business

883
00:54:38,960 --> 00:54:42,240
there. And the multiple there will be significantly higher

884
00:54:42,240 --> 00:54:44,720
than his multiple. So it's interesting that whether he does

885
00:54:44,720 --> 00:54:47,040
it or doesn't do it, it's interesting that he's thinking

886
00:54:47,040 --> 00:54:50,720
of options. That's what I take as in something interesting,

887
00:54:50,720 --> 00:54:55,280
because ultimately, I'm happy to hold it, but love elf, but

888
00:54:55,280 --> 00:54:58,880
forever. And I got to think about, you know, he's in his in

889
00:54:58,880 --> 00:55:02,720
his 80s. And he seems very engaged. It's almost like, you

890
00:55:02,720 --> 00:55:05,680
know, Buffett spoke about that lady in his 90s. And eventually

891
00:55:05,680 --> 00:55:08,160
had a buyer out because she just went back and open business

892
00:55:08,160 --> 00:55:10,320
again, I think was a furniture store or something the other

893
00:55:10,320 --> 00:55:13,360
and she just knew her business. And when he left it to the

894
00:55:13,360 --> 00:55:17,360
children, they couldn't run it and had to just buy out get it

895
00:55:17,360 --> 00:55:22,480
back just to stop. And also, but like that, he's just so

896
00:55:22,480 --> 00:55:26,720
passionate. He's constantly flying around doing deals. But

897
00:55:26,720 --> 00:55:30,000
I'm I'm quite interested about what what happens next. He's got

898
00:55:30,000 --> 00:55:33,520
the energy of a 40 year old. Unbelievable. He's probably a

899
00:55:33,520 --> 00:55:38,880
20 year old. He's so fit. Yeah, it's just his bicycle in and

900
00:55:38,880 --> 00:55:42,000
constantly exercising. You know, he's amazing, amazing guy.

901
00:55:43,680 --> 00:55:45,760
And he's built an amazing business and the market's not

902
00:55:45,760 --> 00:55:50,400
giving him credits. But you can sit there and you can pick

903
00:55:50,400 --> 00:55:55,520
your dividends and it is growing. And quickly. Interesting.

904
00:55:57,920 --> 00:56:02,000
What other opportunities seeing out there in other sectors?

905
00:56:02,800 --> 00:56:05,920
So we've done a range of things. I mean, we do do resources.

906
00:56:06,720 --> 00:56:11,200
We did uranium before became wildly popular. We made some

907
00:56:11,200 --> 00:56:15,040
good money there. We're not in it now. Because when it's an

908
00:56:15,040 --> 00:56:18,720
exceptionally popular trade, you can you can bet that we've

909
00:56:18,720 --> 00:56:23,760
already out. We are in Illumina, which is going to become

910
00:56:23,760 --> 00:56:27,600
Alcoa. And you look at the margins of that business and

911
00:56:27,600 --> 00:56:33,440
they are it's it's a struggle. The margins have shrunk. And so

912
00:56:33,440 --> 00:56:36,720
this is what we typically do. We go in when the when the

913
00:56:36,720 --> 00:56:42,160
margins are low. Knowing that these things go in cycles. So

914
00:56:43,600 --> 00:56:46,240
yeah, the resources where the margins are exceptionally high

915
00:56:46,240 --> 00:56:48,960
where things are going well, we won't be there. But when it

916
00:56:48,960 --> 00:56:52,960
goes through its its dips, then we tap in and typically these

917
00:56:52,960 --> 00:56:59,920
resource ones we do trade. We in and out of Woodside. We do

918
00:56:59,920 --> 00:57:03,280
play that we're in Woodside now, which is a bigger market cap.

919
00:57:04,400 --> 00:57:09,120
On the resource side, other than the uranium plays, we

920
00:57:09,120 --> 00:57:11,280
typically go for the bigger companies because we play in

921
00:57:11,280 --> 00:57:15,760
the resource themselves mostly. And we don't want some sort of

922
00:57:15,760 --> 00:57:18,160
and we want to take a bigger position don't want a company

923
00:57:18,160 --> 00:57:21,200
specific accident. The uranium is a different we bought a

924
00:57:21,200 --> 00:57:25,520
smattering of of them because let's let's be honest, the

925
00:57:25,520 --> 00:57:29,760
uranium is listed on the ASX are juniors. And there's still

926
00:57:29,760 --> 00:57:32,560
much to do. So we just diversified ourselves there.

927
00:57:35,360 --> 00:57:38,000
Yeah, why why why have you exited completely out of

928
00:57:38,000 --> 00:57:40,880
uranium like from my understanding the conversations

929
00:57:40,880 --> 00:57:44,320
that I've had, there's still a disparity on demand and supply

930
00:57:44,320 --> 00:57:51,600
of what demands probably what 180 190 million tons and there's

931
00:57:51,600 --> 00:57:56,320
only what about 140 150 million supply. So there's still like

932
00:57:56,320 --> 00:57:59,840
40 to 50 million missing from the market. And then a

933
00:57:59,840 --> 00:58:01,600
gentleman which I was speaking with saying some of these

934
00:58:01,600 --> 00:58:04,800
mines and they were they're building out all those reactors

935
00:58:04,800 --> 00:58:09,200
as well, which might add another 25 million with the demand.

936
00:58:09,200 --> 00:58:14,320
So what I understand is that that space is just starting to

937
00:58:14,320 --> 00:58:16,720
get going. We've had a massive pullback in the price from

938
00:58:16,720 --> 00:58:19,520
profit taking, which makes sense. But I don't think that's

939
00:58:19,520 --> 00:58:23,680
over. Anyway, I'm just curious as to why you're not even like

940
00:58:23,680 --> 00:58:28,480
holding half or 25% of that position for why we cut out so

941
00:58:28,480 --> 00:58:34,480
early. You know, you could be right. We were we were in there

942
00:58:34,480 --> 00:58:38,560
we built our position in 2019. Again, before the pandemic, we

943
00:58:38,560 --> 00:58:41,680
moved in some of these positions. And that had been a

944
00:58:41,680 --> 00:58:48,000
death zone. And we we looked at that very carefully because you

945
00:58:48,000 --> 00:58:51,040
if you sit there for five years, you are horribly wrong or even

946
00:58:51,040 --> 00:58:53,600
four years, possibly three years, you're going to get

947
00:58:53,600 --> 00:58:56,720
carved out by your clients really. And so you got to go

948
00:58:56,720 --> 00:59:00,960
quite carefully and modestly. And I think if you look at the

949
00:59:00,960 --> 00:59:05,680
timing of when we did it, we're probably a trailblazer. There

950
00:59:05,680 --> 00:59:10,800
were no buts. And so we did it. And we went in with our

951
00:59:10,800 --> 00:59:14,000
reports. So the price is really, really low. You could

952
00:59:14,000 --> 00:59:17,040
understand why. By the way, this demand and supply thing you

953
00:59:17,040 --> 00:59:20,960
could you could also build that same case back then. And there

954
00:59:20,960 --> 00:59:28,240
was no sure thing. And we had a pretty clear idea about what

955
00:59:28,240 --> 00:59:30,320
price when it goes north of that is that we're going to

956
00:59:30,320 --> 00:59:35,600
start getting out and that just comes down to there's a risk

957
00:59:35,600 --> 00:59:42,080
as a fundamental analyst is that when times get good, you

958
00:59:42,080 --> 00:59:48,000
start moving the goalposts. There's also a risk to do that.

959
00:59:48,000 --> 00:59:51,360
And so you might you may well be right, but I think our

960
00:59:51,360 --> 00:59:56,000
fundamental approach is saying we're coming in here. This is

961
00:59:56,000 --> 01:00:01,120
what we think is normal. It bypass the normal. We then

962
01:00:01,120 --> 01:00:06,080
going to be selling. And as I said, even on the MRM, I think

963
01:00:06,080 --> 01:00:10,080
it's very likely MRM is going to continue to do very well. But

964
01:00:10,080 --> 01:00:12,160
it's probably here's a question. Here's a question. I'd

965
01:00:12,160 --> 01:00:16,080
love to talk about, you know, how to how to manage a position,

966
01:00:16,080 --> 01:00:18,560
right? I've always found this topic fascinating as in

967
01:00:18,560 --> 01:00:22,960
percentage sizes. There's one simple philosophy, which I

968
01:00:22,960 --> 01:00:25,760
personally like to use, because it just makes sense in my head

969
01:00:25,760 --> 01:00:28,640
when discussing with clients is if the trading is you have your

970
01:00:28,640 --> 01:00:33,040
risk capital, which you don't want to lose, right? And then

971
01:00:33,040 --> 01:00:35,360
once if you put in money in an investment, then you get your

972
01:00:35,360 --> 01:00:38,880
risk capital back, and then you're making profit over the

973
01:00:38,880 --> 01:00:44,560
top. Well, a very easy, yes, a very nice behavioral psychology

974
01:00:44,560 --> 01:00:49,120
means of managing that is just get your risk capital out, and

975
01:00:49,120 --> 01:00:51,520
then leave your profits in there to run. So if you lose

976
01:00:51,520 --> 01:00:56,240
anything, you actually haven't lost anything. You're right. I'm

977
01:00:56,240 --> 01:00:59,840
wondering how does that, you know, as a value manager, does

978
01:00:59,840 --> 01:01:02,480
that logic make sense in your mind? Or do you say that as

979
01:01:02,480 --> 01:01:03,360
you still risky money?

980
01:01:05,200 --> 01:01:07,360
I understand where you're going as an individual. And I said,

981
01:01:07,360 --> 01:01:09,920
when I start open this fund, like, think of it like my own

982
01:01:09,920 --> 01:01:14,560
money. Yeah. And, you know, I'm heavily invested in this fund

983
01:01:14,560 --> 01:01:20,320
as well. So that does, I do hear what you're saying. But I

984
01:01:20,320 --> 01:01:25,120
do look at it and I say, it's more about I've made my I've

985
01:01:25,120 --> 01:01:28,720
made my money. It's working out exceptionally well. I'm

986
01:01:28,720 --> 01:01:31,520
trading it out. We don't do it in five seconds. We trade it

987
01:01:31,520 --> 01:01:34,720
out. I can see the demand. And I slowly slowly on and I

988
01:01:34,720 --> 01:01:38,160
drop it back out the same way when I'm entering. It's really

989
01:01:38,160 --> 01:01:42,400
awful. Nobody wants to buy it. I don't go by my normally don't

990
01:01:42,400 --> 01:01:47,360
go by my home position very, very quickly. I drop it in. And

991
01:01:47,360 --> 01:01:50,560
I go because I'm not really sure where the bottom is. Could

992
01:01:50,560 --> 01:01:53,200
you know, when people in that negative zone, they can drive

993
01:01:53,200 --> 01:01:56,720
that share price lower than what you ever thought possible. And

994
01:01:56,720 --> 01:01:59,680
the same is on the reverse. I mean, when everybody's think

995
01:01:59,680 --> 01:02:02,000
is the best thing since last prayer, they can take that price

996
01:02:03,440 --> 01:02:06,880
to exceptional highs. And that's that's just the human

997
01:02:06,880 --> 01:02:11,600
nature. So we we tend to trip in, trip out. And there's a

998
01:02:11,600 --> 01:02:14,240
part of in there with the gray zone, we I just don't know.

999
01:02:16,480 --> 01:02:20,720
That's not us. And I do hear you on the on the uranium side. But

1000
01:02:20,720 --> 01:02:24,560
you know, when you when everything's buoyant, you don't

1001
01:02:24,560 --> 01:02:27,680
start thinking about all there could be another Fukushima or

1002
01:02:27,680 --> 01:02:30,240
what if it's happening happens in Russia when they're shooting

1003
01:02:30,480 --> 01:02:33,440
bombs near that reactor in Ukraine, well, like what impact

1004
01:02:33,440 --> 01:02:36,400
will have? There's all sorts of things that can come and hit

1005
01:02:36,400 --> 01:02:40,400
you that you're not expecting. And you think of that more when

1006
01:02:40,400 --> 01:02:43,680
you're losing money, or everybody's against you, you've

1007
01:02:43,680 --> 01:02:47,360
just entered the stock, like you think like that you think, you

1008
01:02:47,360 --> 01:02:50,960
know, you wake up in the morning, you know, you got that

1009
01:02:50,960 --> 01:02:54,560
edge. You're making money and your models are high and it

1010
01:02:54,560 --> 01:02:57,840
means great. You don't wake up in the morning and think, I'm

1011
01:02:57,840 --> 01:03:01,440
really worried. Really worried about my position. You're not

1012
01:03:02,400 --> 01:03:05,600
you think I'm making money doing well. I'm not thinking about

1013
01:03:05,600 --> 01:03:08,640
what I see. I see your logic. So the the force of which I'm

1014
01:03:08,640 --> 01:03:12,320
discussing is you're taking a view on, you know, where it

1015
01:03:12,320 --> 01:03:15,040
could potentially get to. So you know, there is the Australian,

1016
01:03:15,040 --> 01:03:18,240
you know, have a punt type logic with money that technically

1017
01:03:18,240 --> 01:03:20,320
isn't yours, because you're not risking your capital. Yeah, I

1018
01:03:20,320 --> 01:03:22,720
suppose that's one way to look at it. But I suppose from a

1019
01:03:22,960 --> 01:03:28,320
purely business mind and value side, as in you go into it, you

1020
01:03:28,320 --> 01:03:30,320
have the return you want to make. And if you make that

1021
01:03:30,320 --> 01:03:33,360
return, then happy days, happy to leave some on the table.

1022
01:03:33,600 --> 01:03:37,360
What's next? Is that kind of what you're saying? Yes. That is

1023
01:03:37,360 --> 01:03:39,520
what I'm saying. And that way you can sleep at night and

1024
01:03:39,520 --> 01:03:42,160
everyone's comfortable. Yeah, when everybody's feeling

1025
01:03:42,160 --> 01:03:45,280
comfortable, we averaging out, we just don't just do it in one

1026
01:03:45,280 --> 01:03:47,920
day, we just take our time, we average it out, we see that we

1027
01:03:47,920 --> 01:03:51,680
see what's coming. I know who the growth managers are. I see

1028
01:03:51,680 --> 01:03:55,760
them coming. I see the substantial. I see two or three

1029
01:03:55,760 --> 01:03:58,960
of them running run together. And I see the one off the other.

1030
01:03:59,200 --> 01:04:04,320
Of course, I can see what's happening. And yeah, try use it

1031
01:04:04,320 --> 01:04:05,040
to advantage.

1032
01:04:06,640 --> 01:04:10,320
With copper, I suppose copper is very similar copper and natural

1033
01:04:10,320 --> 01:04:14,480
gas, I'd argue very much in that similar stages. Have you got

1034
01:04:14,480 --> 01:04:16,560
positions in them or out of those positions?

1035
01:04:19,440 --> 01:04:23,920
No, I guess I do the natural gas for the bigger one. Yeah, I

1036
01:04:23,920 --> 01:04:27,840
hear you. I hear you on the natural gas. I got to find a

1037
01:04:27,840 --> 01:04:31,920
clean exposure that through like, actually, because after

1038
01:04:31,920 --> 01:04:35,680
the pandemic, and one I actually took a piece of paper and I say

1039
01:04:35,680 --> 01:04:38,880
what are my mistakes? Like I just need to come clear clear air

1040
01:04:38,880 --> 01:04:43,440
because obviously I was got wrapped by a pandemic but like

1041
01:04:43,440 --> 01:04:45,600
there's you always make mistakes, you must think, okay,

1042
01:04:45,600 --> 01:04:48,480
where can I improve? There's always something. So let me

1043
01:04:48,480 --> 01:04:52,160
write this down. So the thing is on the natural gas or some of

1044
01:04:52,160 --> 01:04:56,480
the juniors, it's it's a thing on timing. And you mentioned

1045
01:04:57,040 --> 01:05:02,400
what position how much capital. And so it's on the smaller ones

1046
01:05:03,040 --> 01:05:07,440
is you're going to come really to risk small, I'm a 1% to

1047
01:05:07,440 --> 01:05:12,400
2% whatever. Okay, that's how I'm going to manage my risk. And

1048
01:05:12,400 --> 01:05:17,760
goes goes goes goes to see the capital. Cap exists another cap

1049
01:05:17,760 --> 01:05:21,360
raise. Okay, I think this is the last one. Okay, I might go a

1050
01:05:21,360 --> 01:05:25,040
little bit harder with this one. And you wait, wait, wait. Oh,

1051
01:05:25,040 --> 01:05:28,400
shucks. It's taking so long. And this state government's doing

1052
01:05:28,400 --> 01:05:30,800
this and that and everything else. The next one, next minute

1053
01:05:30,800 --> 01:05:36,800
you look, you put shit load of capital in there. And so yeah,

1054
01:05:36,800 --> 01:05:41,040
it's that was very cautious on that. So just exceptionally

1055
01:05:41,040 --> 01:05:47,280
cautious. And on copper, finding clean copper exposures

1056
01:05:47,280 --> 01:05:50,480
quite hard, you can keep partial of it some of these gold

1057
01:05:50,480 --> 01:05:53,680
entities, which may not be a bad idea to have another look at

1058
01:05:53,680 --> 01:05:57,600
gold, actually, but partially get a bit of it. It's not

1059
01:05:57,600 --> 01:06:00,640
obviously much smaller quantities. But having clean

1060
01:06:00,640 --> 01:06:07,040
coppers, quite difficult. Yeah, on is x, having a nice clean

1061
01:06:07,040 --> 01:06:10,080
copper, clean, clean. It's not that easy.

1062
01:06:10,080 --> 01:06:12,320
Do you want to explain why it is because like, I don't know a

1063
01:06:12,320 --> 01:06:14,320
copper mine that doesn't have a gold next to it a potential

1064
01:06:14,320 --> 01:06:20,560
cobalt. Yeah. It was just, you know, you find the resource,

1065
01:06:20,560 --> 01:06:22,560
then that's just essentially what's in the ground, you find

1066
01:06:22,560 --> 01:06:24,720
copper, and there's going to be things around it. It's going to

1067
01:06:24,720 --> 01:06:27,520
be kind of, you can't, you can't get out around that.

1068
01:06:27,520 --> 01:06:32,160
Absolutely. So look, we we've been hearing, you know, you,

1069
01:06:32,160 --> 01:06:34,320
me, everybody's been hearing that copper has been a good

1070
01:06:34,320 --> 01:06:41,280
trade for a number of years now. I don't disagree. It's hard

1071
01:06:41,280 --> 01:06:49,120
to do it. How to do it clean. Yeah. I there's other things I

1072
01:06:49,120 --> 01:06:52,080
can do. As I said, aluminium is a pretty good conductor of

1073
01:06:52,080 --> 01:06:57,680
electricity to so you want to talk power lines. You can do it

1074
01:06:57,680 --> 01:07:00,640
in aluminium, and you can do it with something that's pretty

1075
01:07:00,640 --> 01:07:06,880
liquid, liquid in shock to bits, get in and out. You can do

1076
01:07:06,880 --> 01:07:10,560
that you can do that trade. So how much of the portfolio you

1077
01:07:10,560 --> 01:07:13,040
trading like looking around these commodity prices compared

1078
01:07:13,040 --> 01:07:18,240
to the stable buy and hold the commodities, the commodity

1079
01:07:18,240 --> 01:07:24,240
stocks, we generally trade more. We'd go in when the

1080
01:07:24,240 --> 01:07:29,440
commodity, or even when the margins are low. So these are

1081
01:07:29,440 --> 01:07:32,560
globally traded commodities, but when the margins are low, we

1082
01:07:32,560 --> 01:07:36,960
would look to go in. And sometimes the margins can last

1083
01:07:36,960 --> 01:07:41,200
low for three years, but it does reprice relatively quickly, you

1084
01:07:41,200 --> 01:07:43,600
know, within that time zone, there's generally a repricing

1085
01:07:43,600 --> 01:07:47,440
that takes place. You know, it's with most of them, unless you

1086
01:07:47,440 --> 01:07:49,680
want to get to small commodities like 10, where it's

1087
01:07:49,680 --> 01:07:53,280
quite difficult to ascertain exactly what the cost curve is.

1088
01:07:53,280 --> 01:07:56,480
A lot of these other ones, you have a fairly good idea what

1089
01:07:56,480 --> 01:07:59,040
the cost curve looks like and where you positioned on that.

1090
01:07:59,040 --> 01:08:03,120
And if you're in the first quartile early in the second

1091
01:08:03,120 --> 01:08:08,320
quartile, you can last. This is why I generally prefer those

1092
01:08:08,320 --> 01:08:11,200
that have been around because I know where I'm at. And I know

1093
01:08:11,200 --> 01:08:15,040
if it takes longer, I can survive a little bit longer

1094
01:08:15,040 --> 01:08:18,640
than you think. But man, you don't want to be sitting in

1095
01:08:18,640 --> 01:08:23,600
third quartile, fourth quartile. And the other thing is with

1096
01:08:23,600 --> 01:08:27,280
commodities, I find that the cycles can sometimes be quite

1097
01:08:27,280 --> 01:08:32,160
long. It can just carry on for that little bit longer. And I

1098
01:08:32,160 --> 01:08:34,640
wouldn't like to be sitting there with a structurally weak

1099
01:08:34,640 --> 01:08:37,680
position. You just can just get carved out.

1100
01:08:37,680 --> 01:08:40,080
Cycles are brutal. It's kind of like when you're putting in a

1101
01:08:40,080 --> 01:08:42,240
kitchen and then the builder comes to you and you tell your

1102
01:08:42,240 --> 01:08:44,560
missus, oh yeah, it's going to take six months to build. And

1103
01:08:44,560 --> 01:08:47,040
then before you know it, the kitchen's still a dust

1104
01:08:47,040 --> 01:08:50,000
dominance. It's been 18 months. And you're nearly getting

1105
01:08:50,000 --> 01:08:54,640
divorced every second day. If I can take that commodity thing,

1106
01:08:54,640 --> 01:08:59,360
which I mean, we're not in, so we've both done it. Yeah. And

1107
01:08:59,360 --> 01:09:04,320
we're talking about small cap value or small cap, large cap.

1108
01:09:04,320 --> 01:09:10,720
This is a cycle. It's like the end of the uranium cycle or

1109
01:09:10,720 --> 01:09:13,600
whatever it might be where nobody wants to touch it.

1110
01:09:13,600 --> 01:09:18,960
The models are low. There's no eyes on it. There's just dead

1111
01:09:18,960 --> 01:09:24,400
zone. When should you buy it? Why weren't they buying it back

1112
01:09:24,400 --> 01:09:29,200
then when it was so cheap? You know what I mean? The supply

1113
01:09:29,200 --> 01:09:32,240
and the demand dynamic, it was showing already. It was showing

1114
01:09:32,240 --> 01:09:35,040
that there was value there. And then later when it's gone up a

1115
01:09:35,040 --> 01:09:38,880
lot, then it's really good value. It's the same thing.

1116
01:09:38,880 --> 01:09:43,600
There's going to be some trailblazers. They'll come. But I

1117
01:09:43,600 --> 01:09:47,280
think we need to know that in a lot of these things, the cycles

1118
01:09:47,280 --> 01:09:53,520
are really long and can be really brutal. But it does

1119
01:09:53,520 --> 01:09:56,320
change. It does happen. It happens a little bit faster than

1120
01:09:56,320 --> 01:09:58,160
you think because eventually there's a bit of momentum and

1121
01:09:58,160 --> 01:10:00,960
then all of a sudden everybody thinks it's a great thing.

1122
01:10:00,960 --> 01:10:04,480
It just happens slowly than all at once. Well, let's discuss

1123
01:10:04,480 --> 01:10:07,280
this because I find this quite interesting because you look at

1124
01:10:07,280 --> 01:10:09,920
the numbers, how my brain works is I've always been patterns. I

1125
01:10:09,920 --> 01:10:12,880
don't know why it's just how my brain operates. I can always see

1126
01:10:12,880 --> 01:10:16,240
the macro patterns. Predominantly where it comes to

1127
01:10:16,240 --> 01:10:20,480
is headlines. What I mean by headlines for signaling a bottom

1128
01:10:20,480 --> 01:10:25,280
of a market is when I start seeing mergers and acquisitions

1129
01:10:25,280 --> 01:10:31,280
space start to heat up or talks off or it just takes one. I

1130
01:10:31,280 --> 01:10:34,960
suppose how my brain works is behavior, behavioral psychology,

1131
01:10:34,960 --> 01:10:40,160
the ability to read, as you said correctly, the moods and the

1132
01:10:40,160 --> 01:10:47,520
emotions of the market. I find that quite interesting. One

1133
01:10:47,520 --> 01:10:50,400
thing I would like to discuss is as I brought up before, there

1134
01:10:50,400 --> 01:10:55,360
hasn't been much M&A activity in small caps at the moment, but

1135
01:10:55,360 --> 01:10:57,600
we've just started to see the beginning of the year, three

1136
01:10:57,600 --> 01:11:02,240
IPOs get off the ground and then a couple of others. Do you

1137
01:11:02,240 --> 01:11:06,320
think that the beginning of a mergers and acquisitions market

1138
01:11:06,320 --> 01:11:12,240
is an indication that the cycle in a particular sector or asset

1139
01:11:12,240 --> 01:11:14,160
class is going to change?

1140
01:11:18,880 --> 01:11:20,000
Or is it about to change?

1141
01:11:20,000 --> 01:11:22,560
It tells me that we've reached the bottom.

1142
01:11:23,440 --> 01:11:23,920
Yeah, okay.

1143
01:11:24,720 --> 01:11:31,040
So out of 14 entities, there's three where there's active M&A

1144
01:11:31,040 --> 01:11:35,760
potential now and I haven't had this. So half of our exits,

1145
01:11:35,760 --> 01:11:40,560
which are about 20 odd companies, take us before the

1146
01:11:40,560 --> 01:11:44,640
pandemic and then there's been nothing for now what four years?

1147
01:11:45,440 --> 01:11:52,080
Nothing. And now within the last three months, I'm hearing of

1148
01:11:52,080 --> 01:11:56,000
it again with what I'm seeing in our portfolio. So it tells me

1149
01:11:56,000 --> 01:11:58,960
that I don't know whether this is going to be the big turn and

1150
01:11:58,960 --> 01:12:01,760
all the odds, there's going to have incremental odds with this

1151
01:12:01,760 --> 01:12:06,080
is it. But I'm very confident we've reached the bottom is

1152
01:12:06,080 --> 01:12:09,920
because that M&A activity people love it. I mean, it just

1153
01:12:09,920 --> 01:12:13,440
got into the newspaper and people think that can make a

1154
01:12:13,440 --> 01:12:18,000
quick buck and it just brings us starts to bring some ours back

1155
01:12:18,000 --> 01:12:20,640
to an area that's been completely neglected and

1156
01:12:20,640 --> 01:12:23,840
rightfully so. Investors have been looking at areas and saying

1157
01:12:23,840 --> 01:12:26,720
I can't make money. I just can't make money the last few years

1158
01:12:26,720 --> 01:12:30,240
and they were right. Very hard. And now you're saying, okay,

1159
01:12:30,240 --> 01:12:33,920
you got this layered on. Come and have a look at it now. And

1160
01:12:33,920 --> 01:12:37,760
then also when you say bring, bring new companies to market.

1161
01:12:39,360 --> 01:12:45,120
That feels the next step. I don't feel we there. I think

1162
01:12:45,120 --> 01:12:49,280
you got to have some M&A of what's there already, just to

1163
01:12:49,280 --> 01:12:53,200
get the market going. And that might take a bit of time. And

1164
01:12:53,200 --> 01:12:57,280
then maybe that window will open up a little bit more. But

1165
01:12:57,280 --> 01:12:59,760
these are all very important things to watch out for. I

1166
01:12:59,760 --> 01:13:02,400
don't disagree, but it takes you know, step by step.

1167
01:13:03,040 --> 01:13:04,720
Because the other thing which we're seeing is, as you

1168
01:13:04,720 --> 01:13:07,200
mentioned, you know, small caps, there's well, there's two

1169
01:13:07,200 --> 01:13:09,120
types that we're currently seeing you got businesses that

1170
01:13:09,120 --> 01:13:12,560
have been spun out. There's an IPO done business has spun out

1171
01:13:12,560 --> 01:13:15,840
mining asset, and that mine assets got cash flows, then you

1172
01:13:15,840 --> 01:13:18,400
go take that asset in order to grow it, you do bold and

1173
01:13:18,400 --> 01:13:21,200
acquisitions, which is what we're starting to see. But then

1174
01:13:21,200 --> 01:13:23,200
the other way everyone's a little concerned with is, yes,

1175
01:13:23,200 --> 01:13:27,440
there's the IPO activity where someone finds a fresh plot of

1176
01:13:27,440 --> 01:13:30,080
land, let's raise some money and off we go. But as you

1177
01:13:30,080 --> 01:13:34,240
pointed out, then you find into ABCD of raising and when does

1178
01:13:34,240 --> 01:13:37,520
it stop? Nobody knows. But the one I find the most

1179
01:13:37,520 --> 01:13:39,920
interesting is that there's the first one of spinning out

1180
01:13:39,920 --> 01:13:44,720
assets, there's cash flow there, or you have a top tier firm,

1181
01:13:44,720 --> 01:13:48,560
a company. And the only way to grow is to go to the bottom

1182
01:13:48,560 --> 01:13:50,960
acquisitions that now that's interesting, because that

1183
01:13:50,960 --> 01:13:55,040
means people got balance sheet, they've got runway and the only

1184
01:13:55,040 --> 01:13:58,720
way to grow is to gobble up the small players. When I see

1185
01:13:58,720 --> 01:14:02,000
that's starting to happen at the bottom, you know, spider

1186
01:14:02,000 --> 01:14:05,760
sink sensors start tingling. Yeah, you're right. And if you

1187
01:14:05,760 --> 01:14:08,800
take the larger industrial companies as an example, they

1188
01:14:08,800 --> 01:14:12,480
had their own issues the last three, four years as well. You

1189
01:14:12,480 --> 01:14:16,320
know, they've got to clean up, get a bit tighter. So they

1190
01:14:16,320 --> 01:14:20,400
weren't ready. But are they ready now? There's time to take

1191
01:14:20,400 --> 01:14:24,080
up and take a breath and have a little look around for sure. So

1192
01:14:24,080 --> 01:14:25,920
the whole cycle will start, you're right, they're going to

1193
01:14:25,920 --> 01:14:29,440
look to gobble up smaller companies again. And that just

1194
01:14:29,440 --> 01:14:31,840
creates market activity and creates opportunities that were

1195
01:14:31,840 --> 01:14:34,880
just not there. Just went there the last three, four years.

1196
01:14:35,520 --> 01:14:37,840
What three sectors were so what those three companies you

1197
01:14:37,840 --> 01:14:40,000
mentioned, what sectors are they in that you've started to see

1198
01:14:40,000 --> 01:14:40,640
this activity?

1199
01:14:41,840 --> 01:14:48,720
So mining services, we've seen it. And further down in our

1200
01:14:48,720 --> 01:14:53,200
portfolio, we we own a beverage company that's very deep

1201
01:14:53,200 --> 01:14:58,400
discount to their net assets. They actually make money and

1202
01:14:58,400 --> 01:15:01,600
pretty decent money. They'll make pretty decent money to as

1203
01:15:01,600 --> 01:15:03,840
you look forward. And they've got an issue got to be able to

1204
01:15:03,840 --> 01:15:06,880
niche yourself. But of course, we've got this giant called

1205
01:15:06,880 --> 01:15:10,880
accolade, which has been taken over by the debt owners. And so

1206
01:15:10,880 --> 01:15:13,760
there's definitely huge cost synergies around it was going to

1207
01:15:13,760 --> 01:15:18,320
be rational, hopefully egos are in sufficiently crushed. But

1208
01:15:18,320 --> 01:15:23,600
there's something to be done there. That's one. And you know,

1209
01:15:23,600 --> 01:15:26,240
I mentioned surf corp listing a portion of their business off

1210
01:15:26,240 --> 01:15:30,080
short to get a better better multiple as an example. And also

1211
01:15:30,080 --> 01:15:32,640
further down, there's a another service company, I won't

1212
01:15:32,640 --> 01:15:37,360
mention it for now, but also got the house in order. I'm

1213
01:15:37,360 --> 01:15:44,480
retaking five times earnings, very consolidated shareholders.

1214
01:15:44,480 --> 01:15:49,760
It's private equity, it's gonna go. So is that kind of thing.

1215
01:15:49,760 --> 01:15:56,720
So yeah, it's it's I'm starting to feel the buzz again. And, and

1216
01:15:56,720 --> 01:15:58,720
also those who have been there and have gone through the

1217
01:15:58,720 --> 01:16:03,120
journey, fix it up, tighten it up, time to go. Okay, let's

1218
01:16:03,120 --> 01:16:05,600
speak to the board, let's have a strategic review. Let's have a

1219
01:16:05,600 --> 01:16:08,080
look around what we can do. And so we have in that again,

1220
01:16:08,080 --> 01:16:12,000
thank goodness. Very interesting, rational. It's

1221
01:16:12,000 --> 01:16:19,040
rational. It's rational. That's very interesting. Well, let's

1222
01:16:19,040 --> 01:16:21,600
let's discuss let's leave equities alone for a second. I

1223
01:16:21,600 --> 01:16:24,000
think I've answered a lot of my questions. That's very, very

1224
01:16:24,000 --> 01:16:28,320
interesting. With the the lending part of the business. Do

1225
01:16:28,320 --> 01:16:31,360
you want to explain how that works? And the number one

1226
01:16:31,360 --> 01:16:33,840
question everyone asks is, okay, cool, you're lending money, you

1227
01:16:33,840 --> 01:16:37,760
know, what who are these companies or people which are

1228
01:16:37,760 --> 01:16:43,120
lending to? And what what percentage are you lending the

1229
01:16:43,120 --> 01:16:49,120
money? Yeah. So I'll just unwind a little bit. I mean, when we

1230
01:16:49,120 --> 01:16:52,480
had the GFC, obviously, the regulators got a lot tighter on

1231
01:16:52,480 --> 01:16:57,600
what the banks can and cannot do and does force them to hold a

1232
01:16:57,600 --> 01:17:02,640
lot more capital on on lanes to be riskier if you go through

1233
01:17:02,640 --> 01:17:07,200
long histories. And so the best thing for a residential bank,

1234
01:17:07,200 --> 01:17:10,880
which they did do is to lend on residential mortgages and your

1235
01:17:10,880 --> 01:17:13,680
amount of capital you hold against that is exceptionally

1236
01:17:13,680 --> 01:17:18,000
low, actually. And so it's great from an ROE perspective. And

1237
01:17:18,000 --> 01:17:22,480
the way the interest rates moved, what these CEOs were

1238
01:17:22,480 --> 01:17:26,240
doing is they let's go residential mortgages and put

1239
01:17:26,240 --> 01:17:28,480
their foot down and all the other stuff where we've got to

1240
01:17:28,480 --> 01:17:33,040
hold higher levels of capital and arguably more risky, it's

1241
01:17:33,040 --> 01:17:36,800
going to penalize our ROE. Let's just focus on this area. And

1242
01:17:36,800 --> 01:17:40,800
so they were kind of neglecting other areas. And so it opened

1243
01:17:40,800 --> 01:17:45,040
the door for the private credit market, which in Australia is

1244
01:17:45,040 --> 01:17:47,920
probably still very much into infancy compared to what we see

1245
01:17:47,920 --> 01:17:54,720
overseas. And a couple of years ago, I mean, I just saw it as

1246
01:17:54,720 --> 01:18:01,040
an interesting product just to deliver income to my clients

1247
01:18:01,040 --> 01:18:04,960
and stability. So it was probably one of the earlier ones

1248
01:18:04,960 --> 01:18:07,760
in that zone. I think every man and his dog is opening a

1249
01:18:07,760 --> 01:18:12,560
private credit fund the last year or so. But we are focusing

1250
01:18:12,560 --> 01:18:17,520
on warehouses to the non-bank lenders. And we feel that for

1251
01:18:17,520 --> 01:18:19,520
some of the warehouses, we like the protections of what a

1252
01:18:19,520 --> 01:18:23,760
warehouse offers, and we only do secured. So we're not going

1253
01:18:23,760 --> 01:18:27,360
for unsecured consumer lends, not trying to pitch ourselves in

1254
01:18:27,360 --> 01:18:33,360
those stacks for warehouses, has to be secured. Steady eddy.

1255
01:18:33,360 --> 01:18:36,800
We've got a tremendous amount of money that wants to enter into

1256
01:18:36,800 --> 01:18:41,120
our fund, and we've just put it on hold. And what we do is when

1257
01:18:41,120 --> 01:18:45,360
we find the land that we like, and fits our metrics, then we

1258
01:18:45,360 --> 01:18:49,200
find them say, you're on our list. We just back it up. And

1259
01:18:49,200 --> 01:18:51,360
that's a very old fashioned way to do it. But that's what we

1260
01:18:51,360 --> 01:18:55,680
do. It's open ended, but we kind of close doors to new clients.

1261
01:18:55,680 --> 01:19:00,560
And because, especially in this market, most of the time we say

1262
01:19:00,560 --> 01:19:07,680
no. People are coming up for lends that aren't secured. We

1263
01:19:07,680 --> 01:19:11,520
don't feel comfortable with the management team. The capital in

1264
01:19:11,520 --> 01:19:14,800
the business doesn't seem to be sufficient. We're just

1265
01:19:14,800 --> 01:19:18,320
exceptionally cautious. But there's lots of deals running

1266
01:19:18,320 --> 01:19:23,760
around there. We don't do development property. We're not

1267
01:19:23,760 --> 01:19:29,040
trying to play that whole property game. So we play in a

1268
01:19:29,040 --> 01:19:33,440
specific niche in the market. We're getting away with what

1269
01:19:33,440 --> 01:19:36,320
we're doing because we've been patient. And also because we've

1270
01:19:36,320 --> 01:19:42,800
been around for a while. So our margins are 550 over, roughly,

1271
01:19:42,800 --> 01:19:45,600
which is still a very good yield, which in today's terms

1272
01:19:45,600 --> 01:19:51,520
means nine and a half ish yield to clients per annum, which we

1273
01:19:51,520 --> 01:19:57,600
pay monthly. And in that sort of space, we play a role for

1274
01:19:57,600 --> 01:20:00,720
society, I guess. We're not trying to shoot the lights out

1275
01:20:00,720 --> 01:20:06,800
in the teens. We don't have performance fees. We're not

1276
01:20:06,800 --> 01:20:10,160
scraping for fees. We have just a modest one percent management

1277
01:20:10,160 --> 01:20:14,560
fee. And we're just trying to iron. When I opened it, I said

1278
01:20:14,560 --> 01:20:17,600
what I want to do with this fund is I must just deliver a

1279
01:20:17,600 --> 01:20:20,160
regular return to my clients and I would like to sleep

1280
01:20:20,160 --> 01:20:24,560
comfortably at night. I don't want to be worried that there's

1281
01:20:24,560 --> 01:20:28,560
going to be a blow up here and there. That said, we watch our

1282
01:20:28,560 --> 01:20:33,040
investments like hawks. We have detailed meetings fortnightly

1283
01:20:33,040 --> 01:20:35,920
with them and go through the book. And the reason why we do

1284
01:20:35,920 --> 01:20:37,920
that, first of all, we want to choose our management teams

1285
01:20:39,280 --> 01:20:43,440
well. And the reason why I say that is because there's always

1286
01:20:43,440 --> 01:20:46,240
something that's going to happen you don't expect. That's

1287
01:20:46,240 --> 01:20:50,160
life. And we're with our management team saying if there

1288
01:20:50,160 --> 01:20:53,120
is a problem or emerging problem, let's find out early.

1289
01:20:53,120 --> 01:20:57,600
Let's fix it. Let's work with you. What can we do? And so

1290
01:20:57,600 --> 01:21:01,360
I don't. There's very few things we had set and forget.

1291
01:21:02,320 --> 01:21:06,080
It's and for us also in the market, we want to be known as

1292
01:21:07,520 --> 01:21:10,160
you. You want to go out there and just get the lowest rate

1293
01:21:10,160 --> 01:21:12,960
or you just want to pick and choose and fight over 20 basis

1294
01:21:12,960 --> 01:21:17,040
points. Go for it. Try your luck if something goes wrong.

1295
01:21:17,040 --> 01:21:19,680
It's good and bad. And there's, you know, some people don't

1296
01:21:19,680 --> 01:21:21,920
want to walk the journey with you. Some people just want to

1297
01:21:21,920 --> 01:21:24,720
fly the coop if something goes wrong. There's all sorts of

1298
01:21:24,720 --> 01:21:29,520
things out there. And for us, it is we like you. We choose you.

1299
01:21:30,880 --> 01:21:33,440
You do the right thing. We'll walk the road and walking the

1300
01:21:33,440 --> 01:21:37,120
road means say we come in and we are the senior funder and you

1301
01:21:37,120 --> 01:21:40,000
walk the road and you become a bigger guy. We'll help you get

1302
01:21:40,000 --> 01:21:42,800
that other senior funder. Then we comfortable to go down to

1303
01:21:42,800 --> 01:21:48,240
miss. So it really does the pins. But we are playing a very

1304
01:21:48,240 --> 01:21:51,440
specific role. But we also quite specific about the type of

1305
01:21:51,440 --> 01:21:57,840
land. If we call it multiple layers of security. So we want

1306
01:21:57,840 --> 01:22:02,880
the oblique or the the underlying oblique or to be

1307
01:22:02,880 --> 01:22:08,640
strong. There must be security behind that. And also the non

1308
01:22:08,640 --> 01:22:11,760
bank finance that the company that we are supporting, they

1309
01:22:11,760 --> 01:22:15,920
want them to be well run. Obviously, they've got a layers

1310
01:22:15,920 --> 01:22:19,200
of protection below us. So if something goes wrong, it hits

1311
01:22:19,200 --> 01:22:27,280
them first and rightfully so. So it's, it's a specific niche in

1312
01:22:27,280 --> 01:22:32,560
the market. We are playing. And so we just got to take one foot

1313
01:22:32,560 --> 01:22:34,960
off to the other and just do that and do that well.

1314
01:22:36,960 --> 01:22:39,200
No, I think it's really good. There's a lot of competitors in

1315
01:22:39,200 --> 01:22:44,160
this space. So I think having good operators that understand

1316
01:22:44,160 --> 01:22:46,880
how to value businesses, you know, doing lens is incredibly

1317
01:22:46,880 --> 01:22:48,720
important. And I think it's really great. It would agree.

1318
01:22:48,720 --> 01:22:52,000
It's good for the companies as well. And I like quite like as

1319
01:22:52,000 --> 01:22:54,960
well. I don't think it's common that people make fortnightly

1320
01:22:54,960 --> 01:23:00,000
maybe monthly. Yeah, I think that's very important. Because

1321
01:23:00,640 --> 01:23:03,440
if you think about it, you're getting a business is focusing

1322
01:23:03,440 --> 01:23:05,280
on growing the business sometimes you don't check your

1323
01:23:05,280 --> 01:23:08,640
back end. That's the way of other people. But, you know, if

1324
01:23:08,640 --> 01:23:11,840
you've got the finance, it's genuinely concerned about, you

1325
01:23:11,840 --> 01:23:13,440
know, ensuring that you're going to get to where you're

1326
01:23:13,440 --> 01:23:17,600
going to be. That's a very good partnership to have and with

1327
01:23:17,600 --> 01:23:20,160
your value, the how you run your equity side of the

1328
01:23:20,160 --> 01:23:23,120
portfolio, you understand patients, things go wrong. And

1329
01:23:23,120 --> 01:23:25,840
it's not necessarily a straight line. That's quite

1330
01:23:25,840 --> 01:23:30,800
interesting. Yeah, I think the equity side helps credit side,

1331
01:23:30,800 --> 01:23:33,920
but the credit side also help my equity side. Yeah, I can see

1332
01:23:33,920 --> 01:23:38,560
that. And I had a question for you as well, James. I met another

1333
01:23:38,560 --> 01:23:41,840
firm came in from Singapore, I won't bring up the names or

1334
01:23:41,840 --> 01:23:47,760
anything, but they brought a very interesting product. And I

1335
01:23:47,760 --> 01:23:50,080
didn't even have heard of it. And on the panel, it's three

1336
01:23:50,080 --> 01:23:53,760
players in Australia. They've managed to marry the relationship

1337
01:23:53,760 --> 01:23:58,960
between lending, private lending to companies with an equity

1338
01:23:58,960 --> 01:24:03,600
uplift, fly warrants. Yes, yes, yes, they are around. Yeah. Yeah.

1339
01:24:04,240 --> 01:24:06,640
And I was just wondering, I don't know anything about this,

1340
01:24:06,640 --> 01:24:09,600
though. So I'm not going to dig into that topic today. That's

1341
01:24:09,600 --> 01:24:12,720
something for else. But I was just wondering, say someone with

1342
01:24:12,720 --> 01:24:18,000
your skill set that you understand both avenues. I'm not

1343
01:24:18,000 --> 01:24:19,680
asking you would you set up another fund. That's not the

1344
01:24:19,680 --> 01:24:22,240
point of this. I'm just wondering, I can see how that

1345
01:24:22,240 --> 01:24:26,160
works in very, very large companies. But I'm just

1346
01:24:26,160 --> 01:24:31,600
wondering, would find that you can both do the equity piece and

1347
01:24:31,600 --> 01:24:34,320
the lend piece on the small to mid sized companies in

1348
01:24:34,320 --> 01:24:36,960
Australia? Does that make sense? Or is just way too much

1349
01:24:36,960 --> 01:24:40,640
risk for that product? And so there's two things that the one

1350
01:24:40,640 --> 01:24:45,600
is on where we lending money to a company, we want investing

1351
01:24:45,600 --> 01:24:50,080
equity. We just want to realize because I think you must be very

1352
01:24:50,080 --> 01:24:53,600
clear about where your hat is. For example, you shouldn't be

1353
01:24:54,320 --> 01:24:56,400
supporting them more on the debt side because you're trying

1354
01:24:56,400 --> 01:24:59,520
to protect equity. That's very dangerous ground. That's the

1355
01:24:59,520 --> 01:25:03,840
first thing. The other thing is, is it all the warrants around,

1356
01:25:03,840 --> 01:25:09,280
say somebody comes into office, it's got a great, we know them,

1357
01:25:09,280 --> 01:25:12,960
actually, we know them as an operator, they've got a great

1358
01:25:12,960 --> 01:25:18,160
model, secured lend. So if the business doesn't make it, we can

1359
01:25:18,160 --> 01:25:21,280
still collect our money. The term is very short, say it's six

1360
01:25:21,280 --> 01:25:23,440
months, we're going to get our money back. I don't have to

1361
01:25:23,440 --> 01:25:26,080
worry that it's going to take years and years and years for

1362
01:25:26,080 --> 01:25:28,880
this book to roll off. But they're starting, they need

1363
01:25:28,880 --> 01:25:32,400
somebody to support them. And they come in here and help us

1364
01:25:32,400 --> 01:25:35,920
to get a warrant. That does exist. I mean, we haven't done

1365
01:25:35,920 --> 01:25:38,400
it. But they exist in the market just because we haven't

1366
01:25:38,400 --> 01:25:42,240
found the right one. And in fact, when there was an earlier

1367
01:25:42,240 --> 01:25:45,360
business that was around, we didn't even play the game because

1368
01:25:45,360 --> 01:25:49,440
we actually wanted the book. We wanted the book to grow because

1369
01:25:49,440 --> 01:25:54,000
there's a competitive market out there. And we were just very

1370
01:25:54,000 --> 01:25:57,840
focused on our clients. We like the lend. And we think we can

1371
01:25:57,840 --> 01:26:01,680
help them be successful and we can grow our book. I mean,

1372
01:26:01,680 --> 01:26:04,480
because we're in a very strange situation, we could probably

1373
01:26:04,480 --> 01:26:09,920
put away a 40, $50 million deal now. We could and just

1374
01:26:09,920 --> 01:26:14,560
define the right deal that suits us. That's difficult. That's

1375
01:26:14,560 --> 01:26:21,040
the trick is just finding that niche which suits us. It

1376
01:26:22,080 --> 01:26:25,760
ticks all those boxes, the right one, and also the right

1377
01:26:25,760 --> 01:26:32,560
yield. I mean, we can't deliver very low rates to our clients

1378
01:26:32,560 --> 01:26:35,760
and still think we're going to be a popular fund. There's an

1379
01:26:36,480 --> 01:26:39,760
area in our niche and we know where it is. And typically it

1380
01:26:39,760 --> 01:26:43,600
will sit above the bank hybrids plus the franking credits,

1381
01:26:44,560 --> 01:26:47,040
somewhere around there. And you can argue whether hybrids are

1382
01:26:47,680 --> 01:26:50,000
more risky or less risky or whatever you want to do. But

1383
01:26:50,000 --> 01:26:51,840
that's just the reality in terms of where you've got to

1384
01:26:51,840 --> 01:26:54,160
pitch yourself, at least if you've been around for a few

1385
01:26:54,160 --> 01:26:56,400
years. And if you haven't been around for a few years, you've

1386
01:26:56,400 --> 01:27:00,720
got to go higher than that. And that's all logic. That's just

1387
01:27:00,720 --> 01:27:05,840
life. Yeah, there's not many funds out there. I know one

1388
01:27:05,840 --> 01:27:09,360
that are paying monthly cash flows. That's quite beneficial.

1389
01:27:10,000 --> 01:27:12,160
You know what I'm saying? That's what brought it up. That's

1390
01:27:12,160 --> 01:27:15,200
not necessarily common and that's quite good on that,

1391
01:27:15,200 --> 01:27:18,800
especially to a lot of high net wealth families that are trying

1392
01:27:18,800 --> 01:27:21,280
to generate monthly cash flows out of assets. That's quite

1393
01:27:21,280 --> 01:27:26,400
interesting. What's the lock in though? So typically, so what

1394
01:27:26,400 --> 01:27:29,840
will be first of all, we will tell all clients, I don't care

1395
01:27:29,840 --> 01:27:33,920
what anybody says in the offer document. This is unlisted

1396
01:27:33,920 --> 01:27:36,960
credit. If we have a moment in time, there's a credit squeeze

1397
01:27:36,960 --> 01:27:42,720
around the world. Your money's not coming out. Yeah, everyone's

1398
01:27:42,720 --> 01:27:44,800
cash, but you're not going to get it because otherwise then

1399
01:27:44,800 --> 01:27:47,760
everything goes pot and you just kind of just hurting yourself.

1400
01:27:47,760 --> 01:27:51,280
And we very clear about that. We've got quarterly, not IM, but

1401
01:27:51,280 --> 01:27:54,000
we've anybody wants to redeem, we've paid them monthly. We're

1402
01:27:54,000 --> 01:27:57,120
not short of cash. We're not short of clients. And because

1403
01:27:57,120 --> 01:28:03,680
it's the cycle we're in. And that we're saying, it could be

1404
01:28:03,680 --> 01:28:07,360
another time. And then it's more difficult. So we're very clear

1405
01:28:07,360 --> 01:28:10,480
about what type of product it is. This is not something that's

1406
01:28:11,120 --> 01:28:13,680
typically liquid. We can go sell it tomorrow. So you just

1407
01:28:13,680 --> 01:28:18,400
have to be, you got to educate your clients as best you can

1408
01:28:18,400 --> 01:28:21,280
what it is. And for all of this stuff, whether it's private

1409
01:28:21,280 --> 01:28:25,360
credit fund or small cap equity, or whatever you do, it's about

1410
01:28:25,360 --> 01:28:29,040
having an element of diversification, but other things

1411
01:28:29,040 --> 01:28:32,320
in your portfolio and eyes wide open, because you know, you

1412
01:28:32,320 --> 01:28:35,360
know, even more than me, you make most of your offer on

1413
01:28:35,360 --> 01:28:39,440
allocation. It's beginning using where you want to put your

1414
01:28:39,440 --> 01:28:42,320
money depending on the environment. And then you pick

1415
01:28:42,320 --> 01:28:45,600
and choose that, like even the stock selection stuff in my

1416
01:28:45,600 --> 01:28:50,640
small cap fund. That's all great. But you know yourself, you

1417
01:28:50,640 --> 01:28:53,360
get your timing right on that space, or that bit of

1418
01:28:53,360 --> 01:28:56,320
diversification there that's going to do you because a world

1419
01:28:56,320 --> 01:28:58,640
of wonders, a lot of boats are going to float when that all

1420
01:28:58,640 --> 01:29:01,520
switches. Yeah. And that gets the same thing that happens.

1421
01:29:01,520 --> 01:29:03,680
It's like, you know, you have a conversation with a client and

1422
01:29:03,680 --> 01:29:05,920
you do all the things that are financial planning orientated

1423
01:29:05,920 --> 01:29:08,000
at a high level, you know, the service is great, everyone's

1424
01:29:08,000 --> 01:29:11,600
happy. But if you stuff up, yeah, I said allocation, you

1425
01:29:11,600 --> 01:29:13,840
know, good diversification always wins. And everyone says,

1426
01:29:13,840 --> 01:29:17,840
you know, diversification, etc, etc. But you know, if you get

1427
01:29:17,840 --> 01:29:20,560
the tailwind right, which we did during COVID times, the

1428
01:29:20,560 --> 01:29:23,360
number of those funds, the doors open and people were just

1429
01:29:23,360 --> 01:29:25,680
like, hey, I had a mate that just did really, really well

1430
01:29:25,680 --> 01:29:28,640
with your fund, but where the trouble with India then, and

1431
01:29:28,640 --> 01:29:31,120
then and then, you know, getting clients non stop, which has

1432
01:29:31,120 --> 01:29:34,800
been fantastic, but where the tough conversation becomes, is

1433
01:29:34,800 --> 01:29:39,200
the conversation where it's near the top. And I'm telling

1434
01:29:39,200 --> 01:29:41,600
that person and then they're telling me, oh, you know, blah,

1435
01:29:41,600 --> 01:29:44,560
blah, blah, x, y, z fund, you know, I want my money there

1436
01:29:44,560 --> 01:29:47,840
because he's done so well. I'm like, you do realize

1437
01:29:47,840 --> 01:29:51,840
potentially you're going to have the opposite result based on

1438
01:29:51,840 --> 01:29:55,040
the timing. If you copy what Joe Blow did, you know, remember

1439
01:29:55,040 --> 01:29:57,360
they stuck their money in 18 months ago, like having that

1440
01:29:57,360 --> 01:30:02,400
conversation with someone is challenging. It's kind of like,

1441
01:30:02,400 --> 01:30:05,680
you know, you go to a psychologist, you know, you're

1442
01:30:05,680 --> 01:30:08,640
young kid, you know, no, no one's going to turn someone

1443
01:30:08,640 --> 01:30:11,120
away. That's paying on time. Mommy and daddy's look after

1444
01:30:11,120 --> 01:30:13,280
you. You don't have a huge amount of problems. You sit in

1445
01:30:13,280 --> 01:30:14,960
the chair and talk about your feelings all the time when

1446
01:30:14,960 --> 01:30:17,520
potentially the best thing to do is go actually kid, there's

1447
01:30:17,520 --> 01:30:20,080
nothing wrong with you. You're fine. Just go do some exercise.

1448
01:30:20,080 --> 01:30:24,480
Yeah. Yeah. You know, I'm hearing what top, you know,

1449
01:30:24,480 --> 01:30:27,280
I've mentioned it for a little while now and I'm picking up

1450
01:30:27,280 --> 01:30:30,160
what type of guy you are. You've got a pretty thankless

1451
01:30:30,160 --> 01:30:33,520
job because you can see signs and you can't be too early

1452
01:30:33,520 --> 01:30:36,720
making your change because it's pretty thankless with your

1453
01:30:36,720 --> 01:30:39,360
clients. You probably are right and you're going to start

1454
01:30:39,360 --> 01:30:41,760
making it and you got to do that switch very slowly and

1455
01:30:41,760 --> 01:30:45,920
you got to massage them slowly, slowly, slowly because they

1456
01:30:45,920 --> 01:30:47,920
come and see you. I don't know, maybe six months or whatever

1457
01:30:47,920 --> 01:30:51,120
and they say, why the hell did you do this? Oh, you pulled me

1458
01:30:51,120 --> 01:30:53,920
out of the NASDAQ. You dropped me a little bit out of the

1459
01:30:53,920 --> 01:30:56,880
NASDAQ and it's just gone up another 30%. What the hell are

1460
01:30:56,880 --> 01:31:01,040
you doing? But this is why, no, but this is why I'm having

1461
01:31:01,040 --> 01:31:04,080
diversification in profile is so important and as I've mentioned

1462
01:31:04,080 --> 01:31:09,120
in the past, you know, having, you know, core then having

1463
01:31:09,120 --> 01:31:12,320
satellites around the edges and then, you know, having this,

1464
01:31:12,320 --> 01:31:14,880
having this, the ability to speak to managers like yourself

1465
01:31:14,880 --> 01:31:17,520
and other managers where you understand that there's some

1466
01:31:17,520 --> 01:31:21,120
asset classes which you can just leave till death do us part

1467
01:31:21,120 --> 01:31:23,840
and there's other ones that you have to, you know, play like a

1468
01:31:23,840 --> 01:31:26,160
chess board and the chess piece just know when to play those

1469
01:31:26,160 --> 01:31:30,160
pieces. It's a dance because you're going to constant life is

1470
01:31:30,160 --> 01:31:35,520
change. Speaking of which, what keeps you up at night and what

1471
01:31:35,520 --> 01:31:37,600
gets you out of the bed in the morning? Since we're discussing

1472
01:31:37,600 --> 01:31:41,760
change, you know, what's on your mind when you're hitting the

1473
01:31:41,760 --> 01:31:43,200
bunk and getting up in the morning?

1474
01:31:46,160 --> 01:31:50,480
Well, I'll say what, what gets me up more. It was interesting.

1475
01:31:50,480 --> 01:31:53,920
A few years ago, we once to, you know, we've got the little

1476
01:31:53,920 --> 01:31:59,600
mantra about what they are and we debated it. So, what's our

1477
01:31:59,600 --> 01:32:06,560
little buzzwords and for us, it was and I think something even

1478
01:32:06,560 --> 01:32:10,640
very personally to me, it was like to earn respect for or

1479
01:32:10,640 --> 01:32:15,040
have respect for what we do and that comes down to when you've

1480
01:32:15,040 --> 01:32:16,880
got an offer document, do what you said you're going to do on

1481
01:32:16,880 --> 01:32:18,960
that offer document and stick to it because it's going to be

1482
01:32:18,960 --> 01:32:22,480
husband and those and times of the model, you know, you're

1483
01:32:22,480 --> 01:32:26,160
going to be in the market and times of the markets in your

1484
01:32:26,160 --> 01:32:31,680
face and times in your back. It's like you come out with a

1485
01:32:31,680 --> 01:32:34,480
nice product as part of that chessboard you're saying and

1486
01:32:34,480 --> 01:32:40,240
you're saying this is what you do. That respect thing for me

1487
01:32:40,240 --> 01:32:43,120
is if you say you're going to do something, you do that

1488
01:32:43,120 --> 01:32:46,720
through the high and the low and everything else. Don't bud

1489
01:32:46,720 --> 01:32:49,040
from what you said you're going to do and then you can come

1490
01:32:49,040 --> 01:32:54,640
out with the high health high and for me, that's personally

1491
01:32:54,640 --> 01:32:58,160
very important. I think I always knew when I came into this

1492
01:32:58,160 --> 01:33:00,160
industry, there were going to be times where it was going to

1493
01:33:00,160 --> 01:33:05,040
be tough. I hadn't had them yet but I had seen others do it

1494
01:33:05,040 --> 01:33:07,920
and I remember saying, I want to do that. You know, like

1495
01:33:07,920 --> 01:33:11,520
these stupid things you say. I don't want to be like that. You

1496
01:33:11,520 --> 01:33:15,600
stick it out like that person. Come on. What glory. Shouldn't

1497
01:33:15,600 --> 01:33:18,000
have ever thought like that. It's stupid. It's freaking

1498
01:33:18,000 --> 01:33:23,520
stupid. It's a stupid world but to do that, there's something

1499
01:33:23,520 --> 01:33:27,120
personal for that for me. I think something special and

1500
01:33:27,120 --> 01:33:31,920
unique about that. So that's what gets me up. What worries

1501
01:33:31,920 --> 01:33:34,960
me,

1502
01:33:36,160 --> 01:33:39,360
you know, I've been so attentive to the assets and the

1503
01:33:39,360 --> 01:33:42,800
business. When you're a business owner, when you

1504
01:33:42,800 --> 01:33:45,520
founded something, a baby and you're a business owner and

1505
01:33:45,520 --> 01:33:47,040
you're watching the bank accounts and watching the bank

1506
01:33:47,040 --> 01:33:53,840
stock, you're constantly watching everything and there's

1507
01:33:53,840 --> 01:33:58,560
a buzz to that and it's good and bad that comes with that.

1508
01:33:58,560 --> 01:34:05,360
It's like you can't turn that off. That is you just and

1509
01:34:05,360 --> 01:34:08,640
there's a separate tone and a kick to that too but sometimes

1510
01:34:08,640 --> 01:34:12,800
it's like, man, I'm just going to take the day today and I'm

1511
01:34:12,800 --> 01:34:16,240
going to my phone's staying at home. I'm going to the beach.

1512
01:34:16,240 --> 01:34:18,400
I'm going to swim three kilometers or something. I'm

1513
01:34:18,400 --> 01:34:22,080
just going to get my or go for a run with last bunch of guys

1514
01:34:22,080 --> 01:34:24,400
here and ladies in the city. I'm going to get myself so

1515
01:34:24,400 --> 01:34:27,600
tired. I can forget about that. It's just a creating those

1516
01:34:27,600 --> 01:34:32,000
breaks because the reality is if you do this, if you do

1517
01:34:32,000 --> 01:34:36,560
strategies where you are really away from the pack and

1518
01:34:36,560 --> 01:34:42,960
you're willing to do it, it is challenging and you have your

1519
01:34:42,960 --> 01:34:49,760
moments but there's a beauty to it too. There's something

1520
01:34:49,760 --> 01:34:54,160
special to do in that and of course, there's a number of

1521
01:34:54,160 --> 01:34:56,720
other good people, some of them that you've interviewed and so

1522
01:34:56,720 --> 01:35:03,520
forth doing that too and hats off to them. Well done. Let's

1523
01:35:03,520 --> 01:35:08,000
stick to that. There's something special to that.

1524
01:35:08,000 --> 01:35:10,000
No, I can understand exactly what you're saying and I

1525
01:35:10,000 --> 01:35:13,760
couldn't agree more and again, this is the reason why I do this.

1526
01:35:13,760 --> 01:35:18,160
We can read as much as we can on the websites or about it but

1527
01:35:18,160 --> 01:35:21,680
trying to understand who you are as a person, James, for me

1528
01:35:21,680 --> 01:35:24,480
personally gives me a read just like playing poker. You play

1529
01:35:24,480 --> 01:35:28,400
the person on the hand of the table and if you understand the

1530
01:35:28,400 --> 01:35:31,120
behaviors and how people think and why they're making

1531
01:35:31,120 --> 01:35:34,560
decisions and then obviously it's up to you, the investor or

1532
01:35:34,560 --> 01:35:36,880
whoever's listening to then decide you've got your money,

1533
01:35:36,880 --> 01:35:40,080
where you're going to allocate it. I think in my personal humble

1534
01:35:40,080 --> 01:35:43,280
opinion, that's why I like active managers because at the

1535
01:35:43,280 --> 01:35:44,480
end of that, what's the expression? If you're the

1536
01:35:44,480 --> 01:35:46,800
smartest person in the room, leave the bloody room.

1537
01:35:46,800 --> 01:35:54,880
Exactly right. We're in a good industry. If you want to, your

1538
01:35:54,880 --> 01:35:59,920
learning curve stays steep. There's always stuff to learn

1539
01:35:59,920 --> 01:36:03,200
here. It's good fun. All right, James. Well, I really

1540
01:36:03,200 --> 01:36:06,160
appreciate the conversation. That was fascinating and if

1541
01:36:06,160 --> 01:36:10,640
anyone needs to learn more about your firm and your

1542
01:36:10,640 --> 01:36:14,320
strategy Wentworth Williamson, how can they best find you?

1543
01:36:15,520 --> 01:36:18,960
Best finding us on the website. It is wentworthwilliamson.com.au

1544
01:36:21,120 --> 01:36:23,120
and you'll find us there. We're pretty responsive.

1545
01:36:24,640 --> 01:36:27,360
Brilliant. All right, James. I hope you have a great day and

1546
01:36:27,360 --> 01:36:30,080
I think the market opened 40 minutes ago. Let's have a look.

1547
01:36:30,080 --> 01:36:44,480
Thank you so much. Take care. See you soon.

1548
01:36:46,480 --> 01:36:48,880
Any views expressed in this recording do not represent a

1549
01:36:48,880 --> 01:36:52,000
view of any other third party and other sole personal opinions

1550
01:36:52,000 --> 01:36:54,880
of the speaker. Any reference to financial product does not

1551
01:36:54,880 --> 01:36:57,600
constitute advice or recommendation and before any

1552
01:36:57,600 --> 01:37:00,240
action you should seek proper advice from your financial

1553
01:37:00,240 --> 01:37:02,640
professional. Australian listeners should head to

1554
01:37:04,000 --> 01:37:07,680
www.moneysmart.gov.au to find more information on obtaining

1555
01:37:07,680 --> 01:37:10,720
financial advice. To get in touch with York, head to our

1556
01:37:10,720 --> 01:37:28,000
website www.yorkwealth.com.au