1
00:00:00,000 --> 00:00:12,800
Welcome back to the Rate of Change with York Wealth Management.

2
00:00:12,800 --> 00:00:16,920
As advice as to some of the wealthiest families in the country, the Rate of Change is a podcast

3
00:00:16,920 --> 00:00:21,320
designed to help you in the pursuit of building long term wealth through the insights of some

4
00:00:21,320 --> 00:00:24,120
of the brightest minds in asset management.

5
00:00:24,120 --> 00:00:29,180
I'm your host Murdoch Gatty and in today's Rockcast we're joined by Sunny Bangia, Global

6
00:00:29,180 --> 00:00:33,800
Portfolio Manager at Black Wattle Investment Partners.

7
00:00:33,800 --> 00:00:38,800
We'll explore the outlook for global equities, US housing, semiconductors, emerging markets

8
00:00:38,800 --> 00:00:46,520
like Brazil and India, advancements in AI and memory, machine learning and the economic

9
00:00:46,520 --> 00:00:48,080
shifts in China.

10
00:00:48,080 --> 00:00:56,200
For me, I really enjoyed speaking with Sunny and really sitting back and digging into the

11
00:00:56,200 --> 00:01:01,120
topics we discussed, but specifically for me, memory.

12
00:01:01,120 --> 00:01:02,120
Why memory?

13
00:01:02,120 --> 00:01:07,040
Well, as the tech world buzzes with developments in AI and machine learning, can't walk down

14
00:01:07,040 --> 00:01:08,720
the street without going to a barbecue.

15
00:01:08,720 --> 00:01:14,440
Someone mentioning how Nvidia is beating the price of Bitcoin as a forefront, it prompts

16
00:01:14,440 --> 00:01:20,160
me to ask, what else is supporting this growth and what else is in the ecosystem that needs

17
00:01:20,160 --> 00:01:25,320
to grow in order for these particular areas to reach their full potential?

18
00:01:25,320 --> 00:01:30,880
Sunny unpacks the critical role of memory in powering these technologies, discusses

19
00:01:30,880 --> 00:01:38,160
the interesting and increasing demands in smartphones, PCs and data centers.

20
00:01:38,160 --> 00:01:43,440
I believe they need about a 50% increase in memory for smartphones and double for data

21
00:01:43,440 --> 00:01:48,440
centers and the long-term structural trends shaping this sector.

22
00:01:48,440 --> 00:01:56,520
These we discuss is Builders First Source, Home Depot, NVR, Nvidia, Taiwan Semiconductor

23
00:01:56,520 --> 00:02:05,760
Manufacturing Company, Lam Research, Micron, Samsung, SK Hynex, ASML, ICIC, Bank of India,

24
00:02:05,760 --> 00:02:11,560
Amazon, Macadalibra, Alibaba, Tencent and many, many more.

25
00:02:11,560 --> 00:02:15,960
Please remember this podcast is intended for entertainment purposes only and should be

26
00:02:15,960 --> 00:02:20,840
not be taken into consideration as financial advice.

27
00:02:20,840 --> 00:02:24,960
Be sure to listen to the disclaimer at the end of the broadcast and keep your feedback

28
00:02:24,960 --> 00:02:26,140
coming.

29
00:02:26,140 --> 00:02:30,600
You can reach me at mgatty at ywm.com.au.

30
00:02:30,600 --> 00:02:34,600
So with that being said, I hope you enjoy this conversation as much as I did.

31
00:02:34,600 --> 00:02:45,920
So sit back, relax and enjoy.

32
00:02:45,920 --> 00:02:48,560
Sonny Bangea, Black Waddle Investment Partners.

33
00:02:48,560 --> 00:02:50,640
Welcome to the Rate of Change with York Wealth Management.

34
00:02:50,640 --> 00:02:51,640
Thanks Murdoch.

35
00:02:51,640 --> 00:02:52,920
Thanks for having me.

36
00:02:52,920 --> 00:02:56,960
It's great sitting in your offices today having a coffee, getting to know you.

37
00:02:56,960 --> 00:03:01,520
So I've known you for quite a bit of time now, but Sonny, why don't you tell everyone

38
00:03:01,520 --> 00:03:05,800
a little bit about yourself and how you got into the wild world of financial markets?

39
00:03:05,800 --> 00:03:07,080
Sure.

40
00:03:07,080 --> 00:03:08,400
It's been a bit of a journey.

41
00:03:08,400 --> 00:03:14,880
I started off thinking that engineering was the career path for myself.

42
00:03:14,880 --> 00:03:17,920
I grew up in a family of engineers.

43
00:03:17,920 --> 00:03:21,640
So it was sort of the default option at home.

44
00:03:21,640 --> 00:03:28,400
Dad is a software engineer and I always found that part of the work very exciting and interesting.

45
00:03:28,400 --> 00:03:34,400
But during the university period, I just pivoted towards business and economics.

46
00:03:34,400 --> 00:03:39,320
Just found that just really interesting and started investing in Australian stocks.

47
00:03:39,320 --> 00:03:40,840
Became absolutely obsessed.

48
00:03:40,840 --> 00:03:46,480
Read all the books that you're meant to read just to learn the basics.

49
00:03:46,480 --> 00:03:52,360
And really then just started pivoting further and further that way towards Australian stocks

50
00:03:52,360 --> 00:03:54,280
that had some kind of global exposure.

51
00:03:54,280 --> 00:03:58,920
Started investing in uranium companies in the early days thinking that countries like

52
00:03:58,920 --> 00:04:03,960
India and China are going to become large middle class economies, which they have and

53
00:04:03,960 --> 00:04:08,360
the demand for power will just go skyrocket.

54
00:04:08,360 --> 00:04:14,160
So I was really interested in the global markets particularly.

55
00:04:14,160 --> 00:04:20,480
And so when I finished up at university, I was looking for opportunities to get closer

56
00:04:20,480 --> 00:04:21,680
to the stock market.

57
00:04:21,680 --> 00:04:26,120
And at that time, most of the graduate programs were not funds and management orientated.

58
00:04:26,120 --> 00:04:28,720
They were very investment banking orientated.

59
00:04:28,720 --> 00:04:34,360
So I did the classic thing and applied to all the Wall Street banks and was very lucky

60
00:04:34,360 --> 00:04:39,960
to find an opportunity inside the Goldman Sachs program, which was really my first experience

61
00:04:39,960 --> 00:04:42,080
into the industry.

62
00:04:42,080 --> 00:04:45,640
And with hindsight now, it was quite an interesting time.

63
00:04:45,640 --> 00:04:47,640
It was just markets were booming.

64
00:04:47,640 --> 00:04:50,400
We had a housing market boom in the US.

65
00:04:50,400 --> 00:04:52,720
We had commodity market booms.

66
00:04:52,720 --> 00:05:00,080
The emergence of the economies like China and India, it was just really interesting

67
00:05:00,080 --> 00:05:02,340
period in global markets.

68
00:05:02,340 --> 00:05:11,040
But I was being exposed to stocks in the stock market, but it wasn't really investing.

69
00:05:11,040 --> 00:05:13,840
So I read a book called Hedgehogging.

70
00:05:13,840 --> 00:05:19,720
It's quite an old book now, but it was a really fascinating read by an author named

71
00:05:19,720 --> 00:05:26,200
Barton Biggs on the world of hedge funds and money management and how different funds operated.

72
00:05:26,200 --> 00:05:33,120
And I really just got hooked and really wanted to move to the buy side, as we call it.

73
00:05:33,120 --> 00:05:40,120
And lucky for me, an opportunity came up at the time at Platinum Asset Management.

74
00:05:40,120 --> 00:05:43,200
And I had been following Platinum for years through their investor letters.

75
00:05:43,200 --> 00:05:49,640
And Care Nielsen was a very brilliant, unique thinker, built a great firm.

76
00:05:49,640 --> 00:05:51,800
And that's kind of how I pivoted in.

77
00:05:51,800 --> 00:05:57,360
I just got an opportunity to work there, and that's where it all started for me on the

78
00:05:57,360 --> 00:06:01,120
buy side about 18 years ago.

79
00:06:01,120 --> 00:06:02,120
Good old Goldman's.

80
00:06:02,120 --> 00:06:03,120
Yes.

81
00:06:03,120 --> 00:06:06,000
It's so interesting.

82
00:06:06,000 --> 00:06:09,440
I love asking these questions and learning where you've come from.

83
00:06:09,440 --> 00:06:15,720
Because the one common thing I've noticed is some people are very lucky to be exactly

84
00:06:15,720 --> 00:06:18,600
where they are from what they wanted at six years old.

85
00:06:18,600 --> 00:06:23,280
But the majority of us, like you and I, all started our paths somewhere.

86
00:06:23,280 --> 00:06:24,640
And then we ended up in finance.

87
00:06:24,640 --> 00:06:25,640
And that's what I love about it.

88
00:06:25,640 --> 00:06:29,120
You can be a rocket scientist, a graphic designer, software engineer.

89
00:06:29,120 --> 00:06:33,640
And I'd actually argue, wouldn't you agree, you're probably better off learning something

90
00:06:33,640 --> 00:06:36,560
else and then pivoting into finance.

91
00:06:36,560 --> 00:06:38,400
Yeah, it's really interesting.

92
00:06:38,400 --> 00:06:45,240
I think as an investor, it does help to have a generalist approach.

93
00:06:45,240 --> 00:06:49,160
Not always, sometimes you do want a specialist, but a generalist approach to looking at different

94
00:06:49,160 --> 00:06:53,840
industries, different countries.

95
00:06:53,840 --> 00:06:56,040
It gives you different perspectives.

96
00:06:56,040 --> 00:07:04,120
So I really do think that being someone that initially grew up in India, seeing what the

97
00:07:04,120 --> 00:07:11,920
emerging markets were like then, doing engineering, understanding physics and science, does just

98
00:07:11,920 --> 00:07:16,520
make you just think about companies and the world a little bit differently versus just

99
00:07:16,520 --> 00:07:20,840
if you are just obsessed with reading accounting books.

100
00:07:20,840 --> 00:07:21,840
You grew up in India.

101
00:07:21,840 --> 00:07:23,240
I wasn't aware of that.

102
00:07:23,240 --> 00:07:24,240
When did you come to Australia?

103
00:07:24,240 --> 00:07:26,300
Oh, look, I came when I was very young.

104
00:07:26,300 --> 00:07:34,400
So I came to Australia around five years old, started school here and not really knew how

105
00:07:34,400 --> 00:07:35,600
to speak English.

106
00:07:35,600 --> 00:07:39,840
So natural language at home spoken was Hindi.

107
00:07:39,840 --> 00:07:45,360
So it was a good challenge to learn how to speak English when you started school.

108
00:07:45,360 --> 00:07:49,160
Yeah, and we'll get into the fact that you got to have some Indian exposure in the portfolio

109
00:07:49,160 --> 00:07:50,160
as well.

110
00:07:50,160 --> 00:07:59,400
But before we get there, you've had quite a very big successful career in asset management.

111
00:07:59,400 --> 00:08:01,120
So Black Wattle is quite young, correct?

112
00:08:01,120 --> 00:08:02,120
Correct.

113
00:08:02,120 --> 00:08:05,700
So do you want to give a bit of colour around what you were doing before Black Wattle and

114
00:08:05,700 --> 00:08:08,120
how Black Wattle came to be?

115
00:08:08,120 --> 00:08:09,360
Absolutely.

116
00:08:09,360 --> 00:08:20,720
So when my most recent stint was at Antipodes Partners, Antipodes is a global fund manager

117
00:08:20,720 --> 00:08:26,800
was set up in 2015 by a few ex-Platinum colleagues.

118
00:08:26,800 --> 00:08:36,080
Jacob Mitchell was deputy CIO at Platinum and a few of us with Jacob left to set up

119
00:08:36,080 --> 00:08:37,080
Antipodes Partners.

120
00:08:37,080 --> 00:08:44,720
And there, co-founding the business with Jacob and some of the other Platinum colleagues,

121
00:08:44,720 --> 00:08:49,640
we launched three strategies, two in global and one in Asia.

122
00:08:49,640 --> 00:08:55,800
I was co-portfolio manager of those global strategies and also on the Asia strategy.

123
00:08:55,800 --> 00:08:57,120
So I was there for about eight years.

124
00:08:57,120 --> 00:08:58,600
It was a great journey.

125
00:08:58,600 --> 00:09:01,240
I learnt a lot of things.

126
00:09:01,240 --> 00:09:07,920
And the business grew from humble beginnings to approximately around $10 billion in assets

127
00:09:07,920 --> 00:09:08,920
under management.

128
00:09:08,920 --> 00:09:13,000
How much of that was in global?

129
00:09:13,000 --> 00:09:14,000
It was all global.

130
00:09:14,000 --> 00:09:20,240
So Antipodes is primarily and only does global equities with very small exposure.

131
00:09:20,240 --> 00:09:21,720
There was two funds?

132
00:09:21,720 --> 00:09:23,280
Yes, it was Antipodes.

133
00:09:23,280 --> 00:09:26,400
So how much was in the global fund compared to the Asian fund?

134
00:09:26,400 --> 00:09:32,920
So I'd say 95% of the assets, 90-95% of the assets were in the two global strategies.

135
00:09:32,920 --> 00:09:33,920
Right.

136
00:09:33,920 --> 00:09:36,760
So, and Black Wattle, how did that come to be?

137
00:09:36,760 --> 00:09:39,360
Why are you here?

138
00:09:39,360 --> 00:09:40,360
What's changed?

139
00:09:40,360 --> 00:09:43,720
What did they say to get you across the line?

140
00:09:43,720 --> 00:09:50,840
Yeah, look, I think what Black Wattle stands for and what's unique and differentiated about

141
00:09:50,840 --> 00:09:57,080
Black Wattle is that their ethos is about becoming the most aligned fund manager in

142
00:09:57,080 --> 00:09:59,360
the industry.

143
00:09:59,360 --> 00:10:04,040
And it sort of comes down to a few interesting points.

144
00:10:04,040 --> 00:10:08,000
So firstly, we're all Black Wattle employees.

145
00:10:08,000 --> 00:10:10,660
We all have ownership in the business.

146
00:10:10,660 --> 00:10:16,280
So we stand for the brand and we all want to support the brand.

147
00:10:16,280 --> 00:10:21,380
And it's just a different take to how other funds management businesses operate where

148
00:10:21,380 --> 00:10:26,440
you have the multi-boutique approach, which is Pinnacle and Antipodes were part of.

149
00:10:26,440 --> 00:10:27,440
And that's excellent.

150
00:10:27,440 --> 00:10:32,040
It's been highly successful and Pinnacle has done a fantastic job.

151
00:10:32,040 --> 00:10:37,460
But here within Black Wattle, the focus here is do fewer things and do them really well.

152
00:10:37,460 --> 00:10:40,440
So we want to do global equities.

153
00:10:40,440 --> 00:10:45,540
We will be the only global equities fund inside Black Wattle.

154
00:10:45,540 --> 00:10:48,560
And that's sort of the focus, which is good.

155
00:10:48,560 --> 00:10:53,320
There won't be another large cap global equities Black Wattle fund in the next few years.

156
00:10:53,320 --> 00:10:58,640
There might be a different strategy like small caps, but in large caps, it's sort of Black

157
00:10:58,640 --> 00:11:03,720
Wattle will be focused, which I think is ultimately as the investor, you feel that the Black Wattle

158
00:11:03,720 --> 00:11:08,560
is bringing the best product to you as investors.

159
00:11:08,560 --> 00:11:15,340
The second thing is the way the incentive structures have been designed.

160
00:11:15,340 --> 00:11:17,760
So no PA trading.

161
00:11:17,760 --> 00:11:19,080
That is really important to me.

162
00:11:19,080 --> 00:11:22,160
I think we should all have all our money in the funds.

163
00:11:22,160 --> 00:11:25,160
So I'll have all my money in the Black Wattle Global Quality Fund.

164
00:11:25,160 --> 00:11:32,600
So will my members of my team, who are all Antipodes.

165
00:11:32,600 --> 00:11:35,260
And we're just going to be focused on that one fund.

166
00:11:35,260 --> 00:11:38,280
And we want to be completely aligned with our clients.

167
00:11:38,280 --> 00:11:40,780
We want to compound our own wealth in the fund.

168
00:11:40,780 --> 00:11:44,680
And if we do that well, then our clients benefit on that journey.

169
00:11:44,680 --> 00:11:47,200
So we just want to be 100% focused.

170
00:11:47,200 --> 00:11:48,960
Let's clarify PA trading, right?

171
00:11:48,960 --> 00:11:52,600
Because this is to a lot of people, they'll be like, yeah, PA trading.

172
00:11:52,600 --> 00:11:53,600
Got it.

173
00:11:53,600 --> 00:11:55,280
A lot of other people like, but that makes no sense.

174
00:11:55,280 --> 00:11:56,640
Your personal money is in the fund.

175
00:11:56,640 --> 00:11:57,640
You are PA trading.

176
00:11:57,640 --> 00:11:58,640
Right.

177
00:11:58,640 --> 00:12:00,960
So I'll give you a bit of color around this.

178
00:12:00,960 --> 00:12:05,840
So when I was at another firm, there's like 200 people on the floor and there was a lot

179
00:12:05,840 --> 00:12:07,240
of old guys still there.

180
00:12:07,240 --> 00:12:08,920
And they looked after some of their clients.

181
00:12:08,920 --> 00:12:11,920
Well, let's be honest, they're just practically punting their superfund most of that most

182
00:12:11,920 --> 00:12:12,920
days.

183
00:12:12,920 --> 00:12:13,920
Right.

184
00:12:13,920 --> 00:12:16,920
And the other comment another guy made was, you know, when you go to an interview, they

185
00:12:16,920 --> 00:12:19,000
don't ask, you know, Oh, how are your clients doing?

186
00:12:19,000 --> 00:12:22,040
They go, Oh, what's your best personal investment you've done recently.

187
00:12:22,040 --> 00:12:23,040
Right.

188
00:12:23,040 --> 00:12:24,040
So it's quite interesting.

189
00:12:24,040 --> 00:12:30,200
But the where this gets a little bit confusing is the difference between say a PA personal

190
00:12:30,200 --> 00:12:32,840
trade compared to personal money in the fund.

191
00:12:32,840 --> 00:12:33,840
Wouldn't you agree?

192
00:12:33,840 --> 00:12:39,640
And please give color around this is PA PA, in my opinion means you're trading money,

193
00:12:39,640 --> 00:12:42,600
not associated to the same ideas that your clients are currently in.

194
00:12:42,600 --> 00:12:43,600
Is that correct?

195
00:12:43,600 --> 00:12:44,600
Yeah.

196
00:12:44,600 --> 00:12:48,440
So what you're currently saying is you're investing alongside your clients.

197
00:12:48,440 --> 00:12:53,240
So all your investable money besides obviously property or assets that are outside of this

198
00:12:53,240 --> 00:12:58,160
is if you want to be in global equities, your money's in that fund.

199
00:12:58,160 --> 00:13:02,280
So any investment you make is essentially the same as your clients.

200
00:13:02,280 --> 00:13:03,640
Is that what you're saying?

201
00:13:03,640 --> 00:13:06,680
That's exactly exactly what we're saying.

202
00:13:06,680 --> 00:13:09,440
That it needs to be you know, you got to, you know, as Warren Buffett puts it, you got

203
00:13:09,440 --> 00:13:11,480
to eat your own cooking.

204
00:13:11,480 --> 00:13:16,880
So we believe that, you know, we're going to try to, you know, cook some good ideas

205
00:13:16,880 --> 00:13:18,080
in global equities.

206
00:13:18,080 --> 00:13:19,720
And we should put all our money in that.

207
00:13:19,720 --> 00:13:21,040
And so should our clients.

208
00:13:21,040 --> 00:13:27,800
There shouldn't be, you know, a differentiated portfolio for the end, the, you know, the

209
00:13:27,800 --> 00:13:31,600
investment staff versus the client, it should all be one.

210
00:13:31,600 --> 00:13:33,720
It creates distractions.

211
00:13:33,720 --> 00:13:39,160
If you're if you're if you're PA trading, you might be buying stock XYZ that the fund

212
00:13:39,160 --> 00:13:40,200
doesn't own.

213
00:13:40,200 --> 00:13:45,760
And because you've got your own money in that XYZ stock, well, you know, incentives drive

214
00:13:45,760 --> 00:13:46,760
everyone, right?

215
00:13:46,760 --> 00:13:50,160
You've got money at stake, you are going to be focusing what's happening there.

216
00:13:50,160 --> 00:13:52,080
And what's our stock doing?

217
00:13:52,080 --> 00:13:55,460
And you know, why wasn't that ID recommended into the live fund?

218
00:13:55,460 --> 00:14:01,860
It could be because there's just generally, you know, maybe there wasn't buy in from the

219
00:14:01,860 --> 00:14:03,360
remaining investment staff.

220
00:14:03,360 --> 00:14:08,640
But what we want to do is we want to create buy in as in if you want us to own it, it

221
00:14:08,640 --> 00:14:10,280
needs to be owned in the fund.

222
00:14:10,280 --> 00:14:14,480
So you should you know, we should be having that healthy debate around the table as why

223
00:14:14,480 --> 00:14:15,480
we should have it.

224
00:14:15,480 --> 00:14:21,760
And as a result, the best ideas then come inside inside out inside our funds.

225
00:14:21,760 --> 00:14:26,600
So Blackwater always, you know, no PA trading is sort of the policy, which which is which

226
00:14:26,600 --> 00:14:27,600
is great.

227
00:14:27,600 --> 00:14:33,840
And the way our incentive structures work is we commit to reinvesting a portion of our

228
00:14:33,840 --> 00:14:40,400
salaries and bonuses if you know, if we generate alpha back right into the funds.

229
00:14:40,400 --> 00:14:43,800
So it's always very aligned, very long term.

230
00:14:43,800 --> 00:14:47,280
You know, and we all are partners of the Blackwater business.

231
00:14:47,280 --> 00:14:49,540
So we're all in it for each other's success.

232
00:14:49,540 --> 00:14:52,320
We want to see all our strategies do well.

233
00:14:52,320 --> 00:14:57,560
We're not competing for distribution resource because we're all representing Blackwater.

234
00:14:57,560 --> 00:15:02,460
Yeah, it's a very interesting point you raise there.

235
00:15:02,460 --> 00:15:05,880
The rise of the business owner is coming back.

236
00:15:05,880 --> 00:15:08,920
I'm so excited.

237
00:15:08,920 --> 00:15:13,440
The agrarian age 200 years ago, I think was 85 percent of Americans and their own business.

238
00:15:13,440 --> 00:15:17,320
I'd hate to think of the statistic now where people are owned, but a lot of things have

239
00:15:17,320 --> 00:15:18,320
changed.

240
00:15:18,320 --> 00:15:20,000
Now you got the ability to work from anywhere.

241
00:15:20,000 --> 00:15:23,720
Laptop warriors set up a business, go to Shopify, you know, just kick it off.

242
00:15:23,720 --> 00:15:24,840
I love that.

243
00:15:24,840 --> 00:15:29,080
And my sisters, the head of remuneration at Sydney Warden, we have this conversation all

244
00:15:29,080 --> 00:15:35,000
the time that if you want to improve or dictate how a business behaves, have a look how they're

245
00:15:35,000 --> 00:15:36,000
being reiterated.

246
00:15:36,000 --> 00:15:40,920
And one of the most interesting things I've seen is that if you give someone a reason

247
00:15:40,920 --> 00:15:45,360
to work in ownership in that business, it's no longer a job anymore.

248
00:15:45,360 --> 00:15:47,760
They won't rock up nine to five.

249
00:15:47,760 --> 00:15:48,760
This is mine.

250
00:15:48,760 --> 00:15:51,680
And then you end up incubating and taking care of that, and especially when you're steward

251
00:15:51,680 --> 00:15:53,560
and a custodian of people's money.

252
00:15:53,560 --> 00:15:55,080
I think that's incredibly important.

253
00:15:55,080 --> 00:15:56,720
Wouldn't you agree?

254
00:15:56,720 --> 00:16:00,640
You said it, I couldn't have said it any better than you did there Murdoch.

255
00:16:00,640 --> 00:16:05,800
I'll just say that, you know, in my, you know, one of the things that I've really learned

256
00:16:05,800 --> 00:16:11,760
over the last 18 years in the industry looking at businesses, incentives matter.

257
00:16:11,760 --> 00:16:16,760
You know, the way we all behave as humans, we are all driven by incentives.

258
00:16:16,760 --> 00:16:21,480
And it is the most fundamental thing that I look for in companies and management teams.

259
00:16:21,480 --> 00:16:26,240
I was a CEO, CFO, a management team, all being compensated because ultimately, you know,

260
00:16:26,240 --> 00:16:28,720
they are managing this business.

261
00:16:28,720 --> 00:16:34,520
And you know, in funds management, I think it's just the same thing, you know, so you

262
00:16:34,520 --> 00:16:35,520
know, no PA trading.

263
00:16:35,520 --> 00:16:39,800
Well, that does force you to think about, well, you know, I've got to invest in the

264
00:16:39,800 --> 00:16:40,800
product.

265
00:16:40,800 --> 00:16:46,600
All the way we have ownership in our product and everyone in our team has ownership in

266
00:16:46,600 --> 00:16:48,920
the product and ownership in the business.

267
00:16:48,920 --> 00:16:54,800
So as you said, we think like owners, we care, we want the business to succeed.

268
00:16:54,800 --> 00:16:58,000
And we really want to generate good returns because we've got all the money in the product.

269
00:16:58,000 --> 00:16:59,000
And that's really our focus.

270
00:16:59,000 --> 00:17:02,360
Well, cracking into the fund and also the stocks in the fund.

271
00:17:02,360 --> 00:17:06,520
But before we do that, I just really want to flesh out the change that's happening in

272
00:17:06,520 --> 00:17:14,040
the past, you know, half a decade, decade, regarding how people think about, you know,

273
00:17:14,040 --> 00:17:17,120
being an owner of a business compared to working for a business.

274
00:17:17,120 --> 00:17:19,080
So you can't from Goldman's, right?

275
00:17:19,080 --> 00:17:20,240
Fantastic institution.

276
00:17:20,240 --> 00:17:26,120
But a lot of these institutions, you know, they give you these flashy titles.

277
00:17:26,120 --> 00:17:30,680
I'm VP, head of sales, managing director, but you're not actually an equity owner in

278
00:17:30,680 --> 00:17:31,680
the business.

279
00:17:31,680 --> 00:17:35,560
The one of the biggest lie that I've ever heard in that I was told coming up through

280
00:17:35,560 --> 00:17:38,760
financial services is come work for us.

281
00:17:38,760 --> 00:17:41,360
We'll make you a lot of money and you'll be happy.

282
00:17:41,360 --> 00:17:45,800
Meanwhile, we're telling our investors to invest in a particular company because in

283
00:17:45,800 --> 00:17:50,960
the future, they'll be able to sell that for a higher multiple if that company does well.

284
00:17:50,960 --> 00:17:51,960
Right.

285
00:17:51,960 --> 00:17:52,960
That's the basis of investing.

286
00:17:52,960 --> 00:17:53,960
Correct.

287
00:17:53,960 --> 00:17:59,640
Meanwhile, the businesses that we're operating, you do 30 years of your time in a major institution

288
00:17:59,640 --> 00:18:02,320
and they give you a pat on the back and say, thank you very much.

289
00:18:02,320 --> 00:18:04,760
And some young kid comes in and take your book.

290
00:18:04,760 --> 00:18:06,480
It makes no sense.

291
00:18:06,480 --> 00:18:09,600
If anyone's wondering why I run my own business, that's pretty much why.

292
00:18:09,600 --> 00:18:14,440
I genuinely believe that, you know, business, I'll probably as you know, people like yourself,

293
00:18:14,440 --> 00:18:17,040
Bernie and Blackwater were doing the right thing.

294
00:18:17,040 --> 00:18:22,440
That if you're going to put, you know, five, 10, 30 years into a business, there has to

295
00:18:22,440 --> 00:18:27,040
be a legacy and the benefit for your family at the end of the note.

296
00:18:27,040 --> 00:18:31,320
I'm finding it very difficult to trust someone if they don't have that way inclined and then

297
00:18:31,320 --> 00:18:34,960
the remuneration clients and the money, which you're a custodian and a steward of, you know,

298
00:18:34,960 --> 00:18:37,040
it's all incentivized in the same direction.

299
00:18:37,040 --> 00:18:39,040
It doesn't not make sense to you.

300
00:18:39,040 --> 00:18:41,360
People spend 30 years of their life and look, I respect them.

301
00:18:41,360 --> 00:18:44,640
My father worked in NAB for 25 years, right?

302
00:18:44,640 --> 00:18:45,640
Phenomenal.

303
00:18:45,640 --> 00:18:46,920
And he was great at what he did.

304
00:18:46,920 --> 00:18:49,160
And I definitely understand that generation.

305
00:18:49,160 --> 00:18:55,640
But wouldn't you say there's a lot of, there's been a massive change in how people are thinking

306
00:18:55,640 --> 00:19:02,560
of, you know, working for a company compared to working for your company or being a part

307
00:19:02,560 --> 00:19:04,880
owner in the company which you work.

308
00:19:04,880 --> 00:19:09,080
When you say that, have you noticed there's been a big change recently?

309
00:19:09,080 --> 00:19:10,520
Absolutely.

310
00:19:10,520 --> 00:19:13,800
And I think it's a function of a few things.

311
00:19:13,800 --> 00:19:18,600
I think people do feel that they want to, you know, they want to be part of something.

312
00:19:18,600 --> 00:19:24,520
So if it succeeds, they share the upside, because they obviously will share the downside.

313
00:19:24,520 --> 00:19:29,920
So it does create that sense of ownership, the level of care, the hard work, commitment,

314
00:19:29,920 --> 00:19:33,520
dedication, just takes it to the next level.

315
00:19:33,520 --> 00:19:38,600
But really the competitive advantage that I've always felt like, you know, with businesses,

316
00:19:38,600 --> 00:19:43,680
with staff, a majority owners, is this long term thinking kicks in.

317
00:19:43,680 --> 00:19:46,520
Yeah, really long term thinking kicks in.

318
00:19:46,520 --> 00:19:48,160
It's not about the short term performance.

319
00:19:48,160 --> 00:19:50,440
It's not about the quarterly results.

320
00:19:50,440 --> 00:19:52,480
It's not about chasing the next fad.

321
00:19:52,480 --> 00:19:54,800
It's about really taking the long term view.

322
00:19:54,800 --> 00:20:02,600
And in a way, one of the biggest inefficiencies left in the market is long term investing.

323
00:20:02,600 --> 00:20:06,960
That if you can just take a longer view, then the market can.

324
00:20:06,960 --> 00:20:12,280
And the market is, as we know, very driven on fads and short term noise.

325
00:20:12,280 --> 00:20:18,700
We know that in any given year, the majority of the returns of stocks are driven by price

326
00:20:18,700 --> 00:20:25,420
to earnings going up, price to earnings going down, just the multiple rerating up and down.

327
00:20:25,420 --> 00:20:28,640
But in the medium term, and medium term doesn't have to be that long, we're really talking

328
00:20:28,640 --> 00:20:34,280
three years, five year window, where the earnings growth is really the primary driver of the

329
00:20:34,280 --> 00:20:35,800
stock returns.

330
00:20:35,800 --> 00:20:42,000
And businesses and business owners that can just take that longer term view, I think they're

331
00:20:42,000 --> 00:20:46,680
in a very well position for the long run.

332
00:20:46,680 --> 00:20:50,340
So I think that long term thinking is really where it's really important.

333
00:20:50,340 --> 00:20:56,480
As an owner, you do need to think long term because you're often taking a pay cut to come

334
00:20:56,480 --> 00:21:00,400
across because as you said, you can get paid very well in the corporate side.

335
00:21:00,400 --> 00:21:04,080
And there's no shame in working in big corporates.

336
00:21:04,080 --> 00:21:08,840
My parents have worked in big corporates, my father did for many, many years.

337
00:21:08,840 --> 00:21:09,920
It was great.

338
00:21:09,920 --> 00:21:15,160
And he contributed significantly to the businesses that he worked for.

339
00:21:15,160 --> 00:21:23,080
But the reality is that in the owner operated world, you're typically coming in on a lower

340
00:21:23,080 --> 00:21:26,560
comp because you're not thinking about comp day to day, you're thinking about how can

341
00:21:26,560 --> 00:21:28,460
I create shareholder value.

342
00:21:28,460 --> 00:21:31,600
And that's really what we look for in the stocks we want to buy.

343
00:21:31,600 --> 00:21:33,760
So obviously, we should behave the same way.

344
00:21:33,760 --> 00:21:37,400
But one thing I just want to clarify, if you don't have an opportunity, if you ask me today,

345
00:21:37,400 --> 00:21:40,760
I've got $500 to my name, you're not going to kick down my house, what am I going to

346
00:21:40,760 --> 00:21:41,760
do?

347
00:21:41,760 --> 00:21:44,720
The number one best thing to do is go get an income paying job.

348
00:21:44,720 --> 00:21:47,960
The best investment you can make is generating a salary.

349
00:21:47,960 --> 00:21:49,840
And what's the expression learn before you earn?

350
00:21:49,840 --> 00:21:52,360
No, I'm just, I'm 37, 37, 38.

351
00:21:52,360 --> 00:21:55,520
At the age of 24, I just walk into this.

352
00:21:55,520 --> 00:21:58,080
You need to build up a book, build up reputation.

353
00:21:58,080 --> 00:21:59,520
You did Goldman's.

354
00:21:59,520 --> 00:22:04,240
These institutions, I think are fantastic for learning before you earn, giving the salary

355
00:22:04,240 --> 00:22:07,760
required to operate in this very expensive city city.

356
00:22:07,760 --> 00:22:12,200
And then you build up your network, you build up your assets, and you figure out what you

357
00:22:12,200 --> 00:22:13,200
want to do.

358
00:22:13,200 --> 00:22:16,480
But you know, anyone that has that has a go and goes for it, a lot of respect to them.

359
00:22:16,480 --> 00:22:22,200
Look, I have, you know, I've owned a company for a very long time called Taiwan Semiconductor,

360
00:22:22,200 --> 00:22:28,880
which is one of the most dominant manufacturing companies in the semiconductor industry, founded

361
00:22:28,880 --> 00:22:32,280
by a gentleman called Morris Chang.

362
00:22:32,280 --> 00:22:36,840
He founded that company at the tender age, I think it was in his mid 50s.

363
00:22:36,840 --> 00:22:38,640
He founded it at 50.

364
00:22:38,640 --> 00:22:42,720
I mean, he saw an opportunity in the market, he saw a gap in the market.

365
00:22:42,720 --> 00:22:46,640
And he obviously went and he plugged it.

366
00:22:46,640 --> 00:22:53,400
But he spent 20, 25 years working for big semiconductor companies in the US, building

367
00:22:53,400 --> 00:22:56,080
knowledge, building that ground.

368
00:22:56,080 --> 00:23:02,760
So you know, look at the end of the day, you get great training in these large corporates.

369
00:23:02,760 --> 00:23:08,040
But really, what we're all here to do is you're here to solve a problem.

370
00:23:08,040 --> 00:23:11,680
And that's what you know, that's what always excites me about the stock market.

371
00:23:11,680 --> 00:23:17,920
I mean, all companies are, you know, ultimately trying to solve a problem, or you are a problem.

372
00:23:17,920 --> 00:23:23,800
And the ones that are really solving big problems, and have built a business around that, you

373
00:23:23,800 --> 00:23:26,160
know, they're the ones that will generally succeed.

374
00:23:26,160 --> 00:23:29,920
And, you know, they don't need to necessarily be all startups, they can be well established

375
00:23:29,920 --> 00:23:30,920
businesses.

376
00:23:30,920 --> 00:23:36,080
It's just maintaining that culture of entrepreneurship and ownership and skin in the game.

377
00:23:36,080 --> 00:23:41,320
Even large businesses like Amazon, I would argue, you know, they still behave like a

378
00:23:41,320 --> 00:23:47,080
startup at a tender market cap of 1.5 trillion.

379
00:23:47,080 --> 00:23:51,440
And it's the culture and so the businesses that really makes you think what are they

380
00:23:51,440 --> 00:23:52,440
doing?

381
00:23:52,440 --> 00:23:59,080
And you know, they're just creating sub, you know, small little startups inside the big

382
00:23:59,080 --> 00:24:03,680
organization, being very creative, trying new things, experimenting, but always trying

383
00:24:03,680 --> 00:24:05,800
to solve a problem.

384
00:24:05,800 --> 00:24:08,720
And that typically that's where the big payoffs are.

385
00:24:08,720 --> 00:24:15,080
Speaking of solving problems, why don't we, you know, show them in the frame of the canvas,

386
00:24:15,080 --> 00:24:16,420
which we're trying to paint here.

387
00:24:16,420 --> 00:24:18,800
What exactly is the global fund?

388
00:24:18,800 --> 00:24:20,840
What are the mechanics?

389
00:24:20,840 --> 00:24:23,280
You know, what's the philosophy of the fund?

390
00:24:23,280 --> 00:24:27,720
And then we'll look into the companies that are in the fund.

391
00:24:27,720 --> 00:24:28,720
Of course.

392
00:24:28,720 --> 00:24:35,000
So the Blackwater Global Quality Fund is a high conviction, long-running strategy of

393
00:24:35,000 --> 00:24:36,880
about 20 to 30 names.

394
00:24:36,880 --> 00:24:41,800
So what we like to say is these companies are marathon runners.

395
00:24:41,800 --> 00:24:45,520
They're in essence, so in essence, we're looking for a particular kind of company, a company

396
00:24:45,520 --> 00:24:53,680
that can endure for the long run and can withstand, you know, the challenges of running a marathon.

397
00:24:53,680 --> 00:24:58,800
And you know, in a lot of cases, these companies may not be the fastest growing companies,

398
00:24:58,800 --> 00:25:01,200
but they are growing companies.

399
00:25:01,200 --> 00:25:07,280
They're in dominant market positions in a segment of the market that is expanding and

400
00:25:07,280 --> 00:25:13,800
growing and they are just able to add value and grow and do that in a very sustainable

401
00:25:13,800 --> 00:25:17,520
way on high returns on capital.

402
00:25:17,520 --> 00:25:22,960
And you know, we really want to find diversity within that group of 30 companies.

403
00:25:22,960 --> 00:25:29,920
So you know, there'll be exposures in emerging markets, in the US, in global industrials.

404
00:25:29,920 --> 00:25:35,600
And we're trying to create that 30-stock portfolio of these unique different IDs across the world

405
00:25:35,600 --> 00:25:40,960
to then give the underlying portfolio revenue diversity exposure.

406
00:25:40,960 --> 00:25:46,960
So it's all correlated to one bet or it's all correlated to one outcome or can sometimes

407
00:25:46,960 --> 00:25:49,440
get correlated to one outcome.

408
00:25:49,440 --> 00:25:55,180
And really, we're solving the portfolio problem in the sense that how can we generate low

409
00:25:55,180 --> 00:25:57,320
teens returns?

410
00:25:57,320 --> 00:25:59,400
And we really want our companies to do the heavy lifting.

411
00:25:59,400 --> 00:26:03,480
That's what we call them, the marathon runners, that they're going to generate low teens earnings

412
00:26:03,480 --> 00:26:04,800
growth over time.

413
00:26:04,800 --> 00:26:08,160
So we're not necessarily hoping for a rerate or a derate.

414
00:26:08,160 --> 00:26:14,240
We're really focusing our efforts on finding those growth in the operating earnings of

415
00:26:14,240 --> 00:26:15,840
the business.

416
00:26:15,840 --> 00:26:24,440
Okay, so with the mechanics of the fund, what are you targeting in the mid teens?

417
00:26:24,440 --> 00:26:26,680
What are the fees of the fund?

418
00:26:26,680 --> 00:26:30,040
Is it daily liquidity?

419
00:26:30,040 --> 00:26:32,200
Anything else we need to know about the mechanics of the fund?

420
00:26:32,200 --> 00:26:35,720
Yes, so it's daily liquidity.

421
00:26:35,720 --> 00:26:39,880
It's Australian unit class structure.

422
00:26:39,880 --> 00:26:42,960
The management fee is 90 basis points.

423
00:26:42,960 --> 00:26:49,600
And there's a performance fee of 12.5% over the MSCI All Country World Index.

424
00:26:49,600 --> 00:26:51,760
And it is an all country fund.

425
00:26:51,760 --> 00:26:55,560
So we do look for opportunities where they may present.

426
00:26:55,560 --> 00:26:59,320
And we'll talk through some of them later on.

427
00:26:59,320 --> 00:27:01,920
But also, it's across industries.

428
00:27:01,920 --> 00:27:04,840
So it's not all technology.

429
00:27:04,840 --> 00:27:10,080
Technology is very interesting, but there are financials, there are very boring insurance

430
00:27:10,080 --> 00:27:15,160
companies in there as well, that have operated for about 80 years, owner operated, family

431
00:27:15,160 --> 00:27:16,840
operated businesses.

432
00:27:16,840 --> 00:27:20,840
So it is trying to just look for where can we find interesting marathon runners.

433
00:27:20,840 --> 00:27:23,960
All right, so the marathon runners, right?

434
00:27:23,960 --> 00:27:26,120
The fun part, let's look at the race.

435
00:27:26,120 --> 00:27:28,720
So what current asset classes?

436
00:27:28,720 --> 00:27:35,000
It's not an asset class, where's the money spread?

437
00:27:35,000 --> 00:27:41,480
Because I think what we're discussing off air, you got money in India, US housing, semiconductors,

438
00:27:41,480 --> 00:27:42,480
global growth.

439
00:27:42,480 --> 00:27:48,760
Why don't we unpack first our good old housing?

440
00:27:48,760 --> 00:27:50,520
That one there blows my mind a little bit, right?

441
00:27:50,520 --> 00:27:55,480
And in particular, I believe, let me just pull up the article so I don't stuff this

442
00:27:55,480 --> 00:28:01,880
one up, because our good friend Warren Buffett came out recently.

443
00:28:01,880 --> 00:28:07,280
And he made a comment on CNBC, actually, no, a number of years ago saying something along

444
00:28:07,280 --> 00:28:11,520
the lines that, you know, if he had money today, that the bet one of the best investments,

445
00:28:11,520 --> 00:28:13,080
I think it was 2012, he said this.

446
00:28:13,080 --> 00:28:18,000
And this is why it's interesting is 12 years later, 2012, he said if he had a whole bunch

447
00:28:18,000 --> 00:28:22,600
of money saying he was a lot younger, he would buy a couple hundred thousand, couple hundred

448
00:28:22,600 --> 00:28:28,080
thousand single family homes in the States.

449
00:28:28,080 --> 00:28:34,280
And in his opinion, he would get them a cheap money or 30 year mortgages and that they would

450
00:28:34,280 --> 00:28:40,720
outpace global equity, global equity or US equities.

451
00:28:40,720 --> 00:28:44,360
Why that's incredibly interesting is fast forward 14 years, would you say that that's

452
00:28:44,360 --> 00:28:46,560
actually transpired?

453
00:28:46,560 --> 00:28:48,160
And do you think that's going to continue?

454
00:28:48,160 --> 00:28:54,480
And if and then you've got, you know, an allocation or, you know, towards that essential thematic?

455
00:28:54,480 --> 00:28:56,640
And how have you actually got about it?

456
00:28:56,640 --> 00:28:58,520
Yeah, I mean, what?

457
00:28:58,520 --> 00:29:05,320
I mean, firstly, I would say with that comment from Warren Buffett, I think that's very fascinating,

458
00:29:05,320 --> 00:29:06,320
interesting.

459
00:29:06,320 --> 00:29:13,640
He's definitely within his holding company has exposures towards US home builders and

460
00:29:13,640 --> 00:29:19,160
building material companies, and obviously, he's known the space for decades.

461
00:29:19,160 --> 00:29:25,160
So it's always very encouraging to see someone with a very long term view.

462
00:29:25,160 --> 00:29:26,160
Think like that.

463
00:29:26,160 --> 00:29:32,540
What are we seeing, which, you know, ends up coming to the stock exposures.

464
00:29:32,540 --> 00:29:40,060
So the US housing market was in effect at the after the at the aftermath of the global

465
00:29:40,060 --> 00:29:45,960
financial crisis was, you know, was in a terrible oversupply, probably a bit like what the Chinese

466
00:29:45,960 --> 00:29:49,280
housing market is today, though they haven't had a financial crisis.

467
00:29:49,280 --> 00:29:53,680
China, they've had a classic housing overbuild.

468
00:29:53,680 --> 00:29:56,440
And now they've got an excess amount of inventory.

469
00:29:56,440 --> 00:29:58,040
That's where the US found itself.

470
00:29:58,040 --> 00:30:06,420
Now, what has happened is the the oversupply of housing essentially went away through just

471
00:30:06,420 --> 00:30:08,440
natural demand.

472
00:30:08,440 --> 00:30:14,000
There's three big tailwinds that US housing is going through that has helped, which is

473
00:30:14,000 --> 00:30:17,080
firstly, demographics are very strong.

474
00:30:17,080 --> 00:30:24,900
So the cohort of buyers between the ages of 25 to 45, there's about more 8 million more

475
00:30:24,900 --> 00:30:26,520
of those individuals today.

476
00:30:26,520 --> 00:30:29,560
And these are the peak house buying years.

477
00:30:29,560 --> 00:30:35,960
Secondly, you've had through that demographic tailwind, demand has just not kept up with

478
00:30:35,960 --> 00:30:38,480
supply in terms of housing supply.

479
00:30:38,480 --> 00:30:43,680
So now you've got about three million homes that have probably been underbuilt in the

480
00:30:43,680 --> 00:30:47,160
United States relative to that demand.

481
00:30:47,160 --> 00:30:50,160
So creating a real surge for housing.

482
00:30:50,160 --> 00:30:55,500
And we have seen multifamily like apartments really take off to try to fill that gap.

483
00:30:55,500 --> 00:31:01,200
And then thirdly, the average age of a home in the United States has aged.

484
00:31:01,200 --> 00:31:07,600
So you've gone from about a decade ago, average age about 29 years to 30 years.

485
00:31:07,600 --> 00:31:09,320
Now it's about 41 years.

486
00:31:09,320 --> 00:31:15,800
So the housing stock has really aged, resulting in a lot of houses needing to be repaired

487
00:31:15,800 --> 00:31:17,160
and renovated significantly.

488
00:31:17,160 --> 00:31:22,240
So you've got these three large tailwinds for housing.

489
00:31:22,240 --> 00:31:27,620
So to answer your question, no, we do think it's going to persist because it is a capital

490
00:31:27,620 --> 00:31:29,280
intensive industry.

491
00:31:29,280 --> 00:31:32,880
It does require capital to come in.

492
00:31:32,880 --> 00:31:37,120
And capital has become a bit tighter in the last couple of years through higher interest

493
00:31:37,120 --> 00:31:38,120
rates.

494
00:31:38,120 --> 00:31:45,720
But also what's happened over the last decade is a lot of home builders have merged, consolidated,

495
00:31:45,720 --> 00:31:51,040
grown market share, home building material companies, which we're more interested in,

496
00:31:51,040 --> 00:31:54,400
have effectively turned into oligopolies and monopolies.

497
00:31:54,400 --> 00:31:58,480
So you've got an industry structure where you've had five to eight players.

498
00:31:58,480 --> 00:32:01,680
Now you've got two to three players.

499
00:32:01,680 --> 00:32:04,780
Pricing power has come roaring in.

500
00:32:04,780 --> 00:32:08,880
Many companies have used excess capacity to just keep growing into.

501
00:32:08,880 --> 00:32:12,040
So returns on capital have just gone up.

502
00:32:12,040 --> 00:32:16,480
So some of these companies, when you just take away the name of the company and you

503
00:32:16,480 --> 00:32:22,280
look at the financials, they look like incredibly high quality businesses with a lot of structural

504
00:32:22,280 --> 00:32:23,280
growth.

505
00:32:23,280 --> 00:32:25,400
They just happen to be in US housing.

506
00:32:25,400 --> 00:32:27,120
So that's really interesting for us.

507
00:32:27,120 --> 00:32:30,920
So we look at them and think, well, there is a marathon here to run.

508
00:32:30,920 --> 00:32:33,840
There is a long term story here in US housing.

509
00:32:33,840 --> 00:32:39,160
US housing still has these demographic tailwinds ahead of it.

510
00:32:39,160 --> 00:32:46,940
So what we think now, the fourth tailwind, which is labor shortages.

511
00:32:46,940 --> 00:32:52,040
So a lot of building home builders, the biggest issue they're having, putting aside financing

512
00:32:52,040 --> 00:32:54,640
and all these are more cyclical issues.

513
00:32:54,640 --> 00:32:57,320
The structural issue is just labor shortages.

514
00:32:57,320 --> 00:33:00,120
You just can't get workers.

515
00:33:00,120 --> 00:33:07,200
And so if you can find companies that can solve that problem for the home builders,

516
00:33:07,200 --> 00:33:10,380
they're massively value add from that point of view.

517
00:33:10,380 --> 00:33:14,120
So we like a company called Builders First Source.

518
00:33:14,120 --> 00:33:21,600
So they have traditionally supplied wooden trusses, custom made trusses to the industry.

519
00:33:21,600 --> 00:33:28,000
So in a way, it allows the industry to buy home builders to buy standardized trusses

520
00:33:28,000 --> 00:33:30,960
very quickly, efficiently, so they can put the home up quickly.

521
00:33:30,960 --> 00:33:35,200
And they've just kept expanding into different parts of the home to just get more of the

522
00:33:35,200 --> 00:33:37,440
wallet share of the home builder.

523
00:33:37,440 --> 00:33:42,800
Why the home builders like them is that it's fast, it's prefabricated or it can be installed

524
00:33:42,800 --> 00:33:44,340
on site.

525
00:33:44,340 --> 00:33:47,320
But the big thing they solve for is labor.

526
00:33:47,320 --> 00:33:53,120
They need less labor, because a lot of it's already done in the factories and warehouses

527
00:33:53,120 --> 00:33:57,120
of Builders First Source and they can just supply it on site.

528
00:33:57,120 --> 00:34:02,520
Secondly, Builders First Source has been digitalizing the industry.

529
00:34:02,520 --> 00:34:07,800
So this is an industry that is still operating the same way it operated 30, 40 years ago,

530
00:34:07,800 --> 00:34:08,920
very manual.

531
00:34:08,920 --> 00:34:15,080
You would go into a home builder showroom, sit down, talk about a design, and maybe you

532
00:34:15,080 --> 00:34:17,680
might win the sale, maybe you wouldn't.

533
00:34:17,680 --> 00:34:23,440
What Builders First Source is trying to do is trying to, it is looking to win the sale

534
00:34:23,440 --> 00:34:24,520
for the home builder.

535
00:34:24,520 --> 00:34:30,480
So you've got a digital software system, a CRM, that can capture all that information,

536
00:34:30,480 --> 00:34:36,320
but also they can help you design the house on the spot and give you a very accurate quote

537
00:34:36,320 --> 00:34:41,080
on the price of that home so that the home builder knows what their budget will be, what

538
00:34:41,080 --> 00:34:44,900
their margin will be, and the buyer will also know this is what I'm paying.

539
00:34:44,900 --> 00:34:51,600
And it sends off workflow to the whole industry, plumbing, electrical, tiling, hey, this is

540
00:34:51,600 --> 00:34:55,280
the home we're trying to build, come on, give me your bids, and locks it all in.

541
00:34:55,280 --> 00:34:59,620
So at point of sale, the home builder can feel very confident that I can lock a lot

542
00:34:59,620 --> 00:35:04,320
of this in rather than carrying a very manual process over time, calling the electrician

543
00:35:04,320 --> 00:35:07,720
up three, four months into the build saying, okay, I need the electrical wiring, what are

544
00:35:07,720 --> 00:35:09,120
the prices now?

545
00:35:09,120 --> 00:35:12,080
And there's variation in that price.

546
00:35:12,080 --> 00:35:16,080
So it's a big opportunity because again, it solves a problem.

547
00:35:16,080 --> 00:35:22,160
It creates an opportunity for Builders First Source to increase margins because it's a

548
00:35:22,160 --> 00:35:26,800
digital business, it's a software business, it's got software like revenue, repeatable

549
00:35:26,800 --> 00:35:28,560
revenue.

550
00:35:28,560 --> 00:35:32,720
So that's interesting to us.

551
00:35:32,720 --> 00:35:36,080
What percentage of the portfolio is associated with US housing?

552
00:35:36,080 --> 00:35:38,840
It's about 15% at the moment.

553
00:35:38,840 --> 00:35:39,840
How many companies?

554
00:35:39,840 --> 00:35:40,840
Three companies.

555
00:35:40,840 --> 00:35:46,400
So just to be clear, you're not physically doing the Buffett and buying companies.

556
00:35:46,400 --> 00:35:50,400
You're not the guy that someone's trying to buy a house and then they get outbid by like

557
00:35:50,400 --> 00:35:52,080
an extra 10%.

558
00:35:52,080 --> 00:35:54,680
And then it's like, how the hell does that nose numbers make sense?

559
00:35:54,680 --> 00:35:58,480
Then you find out it's an LLC on the backend, that's essentially just gobbling up property.

560
00:35:58,480 --> 00:36:00,360
So you're not doing that, right?

561
00:36:00,360 --> 00:36:05,560
So the three companies you're in all do different things with your properties.

562
00:36:05,560 --> 00:36:09,840
So just to be clear, what are the different services they provide and the problems they

563
00:36:09,840 --> 00:36:10,840
have?

564
00:36:10,840 --> 00:36:15,440
Builders First Source provides prefabricated building materials so that the builder can

565
00:36:15,440 --> 00:36:21,280
build a home quickly and with a labor advantage.

566
00:36:21,280 --> 00:36:24,120
And then obviously digitalizing the home building experience.

567
00:36:24,120 --> 00:36:25,680
So that's Builders First Source.

568
00:36:25,680 --> 00:36:27,080
Second is Home Depot.

569
00:36:27,080 --> 00:36:33,160
So Home Depot is like the Bunnings of America, very dominant, leading franchise.

570
00:36:33,160 --> 00:36:38,680
It's got a great market position in pro and DIY.

571
00:36:38,680 --> 00:36:43,720
And again, coming back to that whole, the average, the median age of the home's gone

572
00:36:43,720 --> 00:36:48,960
to 41 years, you just need a lot more repair and renovation and Home Depot is a beneficiary

573
00:36:48,960 --> 00:36:49,960
of that tailwind.

574
00:36:49,960 --> 00:36:56,360
And the third one is a much smaller position is in a company called NVR Homes.

575
00:36:56,360 --> 00:36:58,480
So they actually are a home builder.

576
00:36:58,480 --> 00:37:04,560
So whilst we're not buying the homes ourselves, we have ownership in a company that builds

577
00:37:04,560 --> 00:37:08,560
homes and they typically build entry level homes.

578
00:37:08,560 --> 00:37:09,560
That's their model.

579
00:37:09,560 --> 00:37:10,560
They don't take land bank.

580
00:37:10,560 --> 00:37:18,320
So they're more about fine land and then build on behalf of the consumer and a very efficient,

581
00:37:18,320 --> 00:37:20,580
fast way of getting your home built.

582
00:37:20,580 --> 00:37:24,400
So those are our three large exposures, three exposures into US housing.

583
00:37:24,400 --> 00:37:28,920
Just trying to get my head around how US works compared to what's different to Australia

584
00:37:28,920 --> 00:37:33,680
because we've seen in Australia a lot of international, like the South African company, a couple years

585
00:37:33,680 --> 00:37:34,680
back when it bankrupt.

586
00:37:34,680 --> 00:37:36,720
A lot of in the past has been a shakeout.

587
00:37:36,720 --> 00:37:37,720
It's very thematic.

588
00:37:37,720 --> 00:37:43,720
If there's no supply or under supply, they get built, budgets get stressed, there's no

589
00:37:43,720 --> 00:37:46,280
money coming through, they don't get solved and they collapse.

590
00:37:46,280 --> 00:37:54,120
So how are these three businesses, I suppose, putting a moat around that problem from occurring?

591
00:37:54,120 --> 00:37:55,120
Of course.

592
00:37:55,120 --> 00:38:00,360
So in the case of Builders First Source and Home Depot, I mean, they're supplying.

593
00:38:00,360 --> 00:38:07,960
So they've taken a more capital light approach in supplying materials to the home builders

594
00:38:07,960 --> 00:38:11,080
who typically do the home building lifting.

595
00:38:11,080 --> 00:38:16,080
Home building market is very fragmented and a lot of home builders have to buy land and

596
00:38:16,080 --> 00:38:17,240
then build on that land.

597
00:38:17,240 --> 00:38:24,260
So it's very capital intensive, whereas Builders First Source is more of a supplier.

598
00:38:24,260 --> 00:38:29,600
So the way to think about it is it's a royalty on the home building industry.

599
00:38:29,600 --> 00:38:36,440
It supplies, it's a mission critical part of a capital intensive industry where it earns

600
00:38:36,440 --> 00:38:42,720
a small margin in a large, in a large, in a small take in a large sort of industry,

601
00:38:42,720 --> 00:38:47,180
provide something mission critical, doesn't take a lot of capital on its own balance sheet.

602
00:38:47,180 --> 00:38:51,720
So as a result, even if the home building market remains cyclical, and we definitely

603
00:38:51,720 --> 00:38:56,520
think it will remain cyclical, they have an ability to take more share over time.

604
00:38:56,520 --> 00:39:02,520
More home builders want to use their services because in those down markets, you realize

605
00:39:02,520 --> 00:39:07,480
I need to save cost and Builders First Source with its prefabricated building materials

606
00:39:07,480 --> 00:39:08,720
can help me save costs.

607
00:39:08,720 --> 00:39:10,600
It can help me to top my business.

608
00:39:10,600 --> 00:39:14,480
They're middlemaning these transactions, taking a split and not essentially taking the capital

609
00:39:14,480 --> 00:39:15,920
risk or the debt risk.

610
00:39:15,920 --> 00:39:16,920
Correct.

611
00:39:16,920 --> 00:39:17,920
That's right.

612
00:39:17,920 --> 00:39:20,840
And in the case of Home Depot, look, they're a more of a retailer.

613
00:39:20,840 --> 00:39:21,840
So they obviously-

614
00:39:21,840 --> 00:39:22,840
It's like bunnings.

615
00:39:22,840 --> 00:39:23,840
They're like bunnings, yeah.

616
00:39:23,840 --> 00:39:27,520
I'm just finding very interesting what's happening in that space.

617
00:39:27,520 --> 00:39:30,400
And I think I read somewhere that house prices aren't going up.

618
00:39:30,400 --> 00:39:32,400
The US dollar is devaluing aggressively.

619
00:39:32,400 --> 00:39:36,560
So every single time your house goes up 7%, your cash balance just lost 7%.

620
00:39:36,560 --> 00:39:38,560
Something crazy like that.

621
00:39:38,560 --> 00:39:40,760
It's just very interesting what's happening with the world.

622
00:39:40,760 --> 00:39:45,160
But let's talk about the fun part, which is what's been hammering along.

623
00:39:45,160 --> 00:39:47,800
It's actually slowed down in the past three months.

624
00:39:47,800 --> 00:39:51,520
The Magnificent 7 and semiconductors.

625
00:39:51,520 --> 00:39:55,440
I've known Nvidia for a long time, good old gaming.

626
00:39:55,440 --> 00:40:01,060
Those graphic cards are a lot of fun, but there are other uses for them in making money.

627
00:40:01,060 --> 00:40:02,440
So what's happening?

628
00:40:02,440 --> 00:40:04,400
You mentioned, how about we do this?

629
00:40:04,400 --> 00:40:05,400
You mentioned TSM.

630
00:40:05,400 --> 00:40:08,760
Can, how about we start with what is the ecosystems?

631
00:40:08,760 --> 00:40:15,240
Because some people think, okay, you need a graphics card, right?

632
00:40:15,240 --> 00:40:16,240
But it doesn't stop there.

633
00:40:16,240 --> 00:40:21,160
There are a number of different components that are required in that ecosystem.

634
00:40:21,160 --> 00:40:23,800
You know, Nvidia graphics card, TSM does one particular thing.

635
00:40:23,800 --> 00:40:26,320
And then I believe you're also investing in memory.

636
00:40:26,320 --> 00:40:31,880
So I wouldn't mind hearing what actually is that, you know, connective diagram of the

637
00:40:31,880 --> 00:40:34,480
services and who are the best players in there.

638
00:40:34,480 --> 00:40:38,560
And I actually haven't, I don't know much about the biggest players and what's happening

639
00:40:38,560 --> 00:40:39,560
about developing memory.

640
00:40:39,560 --> 00:40:41,040
I would find that quite interesting.

641
00:40:41,040 --> 00:40:42,040
Yeah, absolutely.

642
00:40:42,040 --> 00:40:43,320
Yeah, you're absolutely right.

643
00:40:43,320 --> 00:40:47,560
There are different layers in the ecosystem.

644
00:40:47,560 --> 00:40:52,720
But at the essence, what we're, what it's about, what semiconductors, what we're seeing

645
00:40:52,720 --> 00:41:00,920
today is that you've got a chip, let's call it a GPU, which is an accelerator, computing

646
00:41:00,920 --> 00:41:01,920
accelerator.

647
00:41:01,920 --> 00:41:08,780
It's a lot of small little cores, very high intensity, very high throughput.

648
00:41:08,780 --> 00:41:12,000
And then there's models that run on top of that.

649
00:41:12,000 --> 00:41:19,520
Now the chips themselves are designed by companies like AMD and Nvidia, manufactured by companies

650
00:41:19,520 --> 00:41:21,280
like TSMC.

651
00:41:21,280 --> 00:41:29,320
And TSMC lead and dominate the manufacturing of these high end leading chips that go into

652
00:41:29,320 --> 00:41:31,880
our data centers, into our phones.

653
00:41:31,880 --> 00:41:36,320
So a big part of TSMC's customer base is Apple.

654
00:41:36,320 --> 00:41:40,960
Apple is a very big chips, not chips company, but a phone company that has a chip inside

655
00:41:40,960 --> 00:41:42,280
of it.

656
00:41:42,280 --> 00:41:46,960
And then accompanying the chip is memory, as you rightly point out.

657
00:41:46,960 --> 00:41:52,320
Memory, you know, what we're seeing today is, well, there's a lot of fanfare about GPUs

658
00:41:52,320 --> 00:41:54,520
and accelerator compute, for rightly so.

659
00:41:54,520 --> 00:41:56,640
This is a very exciting part we're in.

660
00:41:56,640 --> 00:42:02,360
And we've all used Chachi BT and can see how amazing the fact that you can get some level

661
00:42:02,360 --> 00:42:07,560
of intelligence now being programmed into a model.

662
00:42:07,560 --> 00:42:11,280
And the thing that's sort of overlooked is that it's also very memory intensive.

663
00:42:11,280 --> 00:42:15,820
It's not only just GPU intensive, it's also very memory intensive.

664
00:42:15,820 --> 00:42:21,480
And we are going into this new era of what we need as part of the chips is something

665
00:42:21,480 --> 00:42:23,760
called high bandwidth memory.

666
00:42:23,760 --> 00:42:28,300
And this cycle for high bandwidth memory is going to be quite a big cycle.

667
00:42:28,300 --> 00:42:33,040
And the memory companies are very well positioned to benefit from that over the next few years

668
00:42:33,040 --> 00:42:34,640
for two reasons.

669
00:42:34,640 --> 00:42:40,000
First reason, they were in a down market last year and that down market ended in 2023.

670
00:42:40,000 --> 00:42:42,520
And now we've started an upcycle.

671
00:42:42,520 --> 00:42:47,000
But the upcycle is not only starting because we are seeing a replacement demand in PCs

672
00:42:47,000 --> 00:42:51,760
and smartphones, but it's also that our PCs and smartphones are going to become a lot

673
00:42:51,760 --> 00:42:53,320
more intelligent.

674
00:42:53,320 --> 00:42:59,480
So the flagship Samsung S24, for example, has AI capabilities.

675
00:42:59,480 --> 00:43:08,760
It's got a small little language model embedded inside of it, which is going to help us interact

676
00:43:08,760 --> 00:43:14,160
with the phone in a very different way in prior generations, but it's more memory intensive.

677
00:43:14,160 --> 00:43:15,840
That's going to go into our PCs.

678
00:43:15,840 --> 00:43:18,260
It's going to happen on the Apple devices.

679
00:43:18,260 --> 00:43:20,480
It's already happening in the data center.

680
00:43:20,480 --> 00:43:27,960
So the three large memory companies, Samsung, SK Hynix and Micron are all benefiting from

681
00:43:27,960 --> 00:43:29,000
this.

682
00:43:29,000 --> 00:43:34,240
So the way we were playing it is that whilst memory is interesting and exciting and it

683
00:43:34,240 --> 00:43:40,680
has consolidated largely to these three large companies, we want to own the companies that

684
00:43:40,680 --> 00:43:45,840
is supplying equipment to the memory companies, which is a company called Lam Research.

685
00:43:45,840 --> 00:43:51,640
Because in the case of Lam Research, the equipment that they supply is so mission critical, it's

686
00:43:51,640 --> 00:43:53,280
only them supplying it.

687
00:43:53,280 --> 00:43:59,280
So they have a monopoly or near monopoly on the equipment that is going to the memory market.

688
00:43:59,280 --> 00:44:02,440
They own significantly higher margins.

689
00:44:02,440 --> 00:44:03,440
They also...

690
00:44:03,440 --> 00:44:05,120
What is the profit margins?

691
00:44:05,120 --> 00:44:09,000
So they earn a return on capital of about 30%.

692
00:44:09,000 --> 00:44:15,240
They have much more stability in their earnings profile as a result.

693
00:44:15,240 --> 00:44:20,840
And they also benefit from the long term structural trend we are seeing in memory demand.

694
00:44:20,840 --> 00:44:26,680
So on average, our smartphones probably need about 50% more memory.

695
00:44:26,680 --> 00:44:28,760
Our PCs probably the same.

696
00:44:28,760 --> 00:44:30,960
The data centers are probably double.

697
00:44:30,960 --> 00:44:35,720
So there's a huge memory bottleneck that needs to be solved.

698
00:44:35,720 --> 00:44:37,640
The problem that we need to solve for.

699
00:44:37,640 --> 00:44:42,640
And the large memory companies in Korea and Micron in the US are going to spend a lot

700
00:44:42,640 --> 00:44:45,000
of money building out capacity.

701
00:44:45,000 --> 00:44:51,640
So Lam Research benefits from that build out, but they are most exposed to that technology

702
00:44:51,640 --> 00:44:52,640
process.

703
00:44:52,640 --> 00:44:56,040
Who's Lam Research's biggest competitor?

704
00:44:56,040 --> 00:44:58,080
So the biggest competitors...

705
00:44:58,080 --> 00:45:03,120
So what has happened in the equipment supplier market to the semiconductor industry, you've

706
00:45:03,120 --> 00:45:07,880
typically got four or five players and they all do their own thing.

707
00:45:07,880 --> 00:45:10,800
So a lot of investors may have heard of ASML.

708
00:45:10,800 --> 00:45:14,000
They're much more logic driven.

709
00:45:14,000 --> 00:45:18,440
And in a way, they are the only game in town when it comes to logic.

710
00:45:18,440 --> 00:45:23,960
And the industry has consolidated in semiconductor equipment because the barriers to entry are

711
00:45:23,960 --> 00:45:25,280
just phenomenal.

712
00:45:25,280 --> 00:45:32,800
So the capital that's required to build these equipment is into the billions of dollars.

713
00:45:32,800 --> 00:45:40,240
TSMC's capital expenditure budget is 20 to 25 billion per annum and rising.

714
00:45:40,240 --> 00:45:46,760
So it's just so much capital intensity that it can't support many players.

715
00:45:46,760 --> 00:45:52,940
So everyone, all the companies have effectively built out their niches.

716
00:45:52,940 --> 00:45:57,920
And in the last cycle, Murdoch, the memory intensity wasn't that high.

717
00:45:57,920 --> 00:45:58,920
Okay.

718
00:45:58,920 --> 00:46:00,800
And this is what I wanted to get into.

719
00:46:00,800 --> 00:46:02,040
And I've been thinking about it.

720
00:46:02,040 --> 00:46:07,360
So everyone's seen the share prices, what's happening with Nvidia, you know, in other

721
00:46:07,360 --> 00:46:09,000
areas in the chain.

722
00:46:09,000 --> 00:46:13,040
What did the share price do for memory and say, land research?

723
00:46:13,040 --> 00:46:16,760
And what did they do before?

724
00:46:16,760 --> 00:46:17,800
Then everything crashed.

725
00:46:17,800 --> 00:46:19,300
And what's it doing now?

726
00:46:19,300 --> 00:46:22,360
So you've seen that initially it was driven by Nvidia.

727
00:46:22,360 --> 00:46:26,680
The more AI you're exposed, the better the share price did.

728
00:46:26,680 --> 00:46:29,320
And Nvidia really led the first part of it.

729
00:46:29,320 --> 00:46:35,920
And for right reasons, they are expanding into a very exciting, big market in artificial

730
00:46:35,920 --> 00:46:39,200
intelligence, intelligence data centers.

731
00:46:39,200 --> 00:46:44,920
As the market has evolved, it has become now more likely that this is a big market and

732
00:46:44,920 --> 00:46:48,960
it's not only going to happen in the data center, it's going to happen what we call

733
00:46:48,960 --> 00:46:50,200
at the edge.

734
00:46:50,200 --> 00:46:52,840
And edge really means my smartphone.

735
00:46:52,840 --> 00:46:54,400
It means my laptop.

736
00:46:54,400 --> 00:47:00,560
A lot of the companies like Microsoft that are launching copilot, you know, they tell

737
00:47:00,560 --> 00:47:08,440
us that a lot of the copilots sort of calculations and intelligence will happen on device.

738
00:47:08,440 --> 00:47:09,440
Yeah.

739
00:47:09,440 --> 00:47:12,560
So we've what's the code for land research?

740
00:47:12,560 --> 00:47:19,080
The code is LRCX.

741
00:47:19,080 --> 00:47:20,360
Land research.

742
00:47:20,360 --> 00:47:25,720
And so now to, you know, to your to your question, the memory companies are starting to do quite

743
00:47:25,720 --> 00:47:26,720
well.

744
00:47:26,720 --> 00:47:29,160
We've seen good earnings out of micron.

745
00:47:29,160 --> 00:47:31,760
We've seen good I'm looking at the chart right now.

746
00:47:31,760 --> 00:47:38,080
So at the beginning of the year, so one year chart, Lam research corporation was 521 and

747
00:47:38,080 --> 00:47:39,080
50.

748
00:47:39,080 --> 00:47:40,080
Is that US dollars?

749
00:47:40,080 --> 00:47:41,080
That's right.

750
00:47:41,080 --> 00:47:45,280
US dollars today is trading at 970 and 37.

751
00:47:45,280 --> 00:47:47,200
Yeah, right.

752
00:47:47,200 --> 00:47:52,720
And if anyone could pick this company back in 1995, you already got it for two bucks.

753
00:47:52,720 --> 00:47:55,000
I speak in which I saw a chart the other day.

754
00:47:55,000 --> 00:47:56,000
I can't remember.

755
00:47:56,000 --> 00:47:57,000
I saw it.

756
00:47:57,000 --> 00:47:59,480
I apologize, but I saw a chart.

757
00:47:59,480 --> 00:48:03,760
They put the life cycle of Bitcoin next to Nvidia.

758
00:48:03,760 --> 00:48:05,240
And then the chart like ticked along.

759
00:48:05,240 --> 00:48:10,080
And what it turns out right now that you would have been better off investing in Nvidia by

760
00:48:10,080 --> 00:48:13,840
like double the amount as of today compared to what's happening with Bitcoin.

761
00:48:13,840 --> 00:48:17,160
And it just the reason why I'm finding this conversation, I want to go back to the memory

762
00:48:17,160 --> 00:48:19,120
is that, you know, it's a good old gold rush.

763
00:48:19,120 --> 00:48:22,760
You know, what are you better investing in, you know, picks and shovels or, you know,

764
00:48:22,760 --> 00:48:24,160
go go for the gold itself.

765
00:48:24,160 --> 00:48:28,600
So I'd love to hear your thoughts on that, but back to lamb research in this memory.

766
00:48:28,600 --> 00:48:30,440
I don't know much about it.

767
00:48:30,440 --> 00:48:33,440
So do you know what's required to do?

768
00:48:33,440 --> 00:48:34,440
What is it?

769
00:48:34,440 --> 00:48:35,440
Is it a chip?

770
00:48:35,440 --> 00:48:36,480
Is it a processor?

771
00:48:36,480 --> 00:48:38,600
What exactly is the memory bank?

772
00:48:38,600 --> 00:48:39,600
Is this in the cloud?

773
00:48:39,600 --> 00:48:43,560
I don't know very little about this space.

774
00:48:43,560 --> 00:48:44,560
Yeah.

775
00:48:44,560 --> 00:48:49,920
So not to get too technical, but what they say, please get technical.

776
00:48:49,920 --> 00:48:59,080
What they really do is they supply equipment to allow the memory companies to then produce

777
00:48:59,080 --> 00:49:02,240
the actual memory chips.

778
00:49:02,240 --> 00:49:03,840
It's a long lead time.

779
00:49:03,840 --> 00:49:10,720
You know, you're designed in as you're going through different generations of memory, you

780
00:49:10,720 --> 00:49:17,240
are communicating, you know, Samsung, Micron and Hynix are communicating back and forth

781
00:49:17,240 --> 00:49:20,920
with lamb and the suppliers and the ecosystem.

782
00:49:20,920 --> 00:49:22,680
And it is really an ecosystem.

783
00:49:22,680 --> 00:49:25,380
That's really what I wanted to highlight.

784
00:49:25,380 --> 00:49:29,080
It's not one company doing one thing.

785
00:49:29,080 --> 00:49:37,440
They're all working together and they're working together because it is such a capital intensive

786
00:49:37,440 --> 00:49:45,320
industry getting things wrong and having low, what we call low yields is it's painful.

787
00:49:45,320 --> 00:49:54,120
And an example of that is Intel that has lagged TSMC in leading edge foundry and that cost

788
00:49:54,120 --> 00:49:56,100
them billions of dollars.

789
00:49:56,100 --> 00:50:06,760
And so what lamb do, they supply these equipment to the industry, the memory industry specifically,

790
00:50:06,760 --> 00:50:11,960
then that allows them to then move to the next generation of memory node.

791
00:50:11,960 --> 00:50:16,920
You're going into HBM and then it comes down to how much capacity do we need to build and

792
00:50:16,920 --> 00:50:19,920
therefore how much equipment do we need to buy?

793
00:50:19,920 --> 00:50:24,200
And obviously the bigger the cycle, the more equipment that needs to be purchased.

794
00:50:24,200 --> 00:50:26,300
And that's very specific to memory.

795
00:50:26,300 --> 00:50:30,400
You've got the same thing happening in logic and various other parts of the system.

796
00:50:30,400 --> 00:50:34,840
Is memory different to RAM, which is your random access memory?

797
00:50:34,840 --> 00:50:36,080
Because everyone knows the acronym RAM.

798
00:50:36,080 --> 00:50:38,580
They say it on every single device I've ever purchased.

799
00:50:38,580 --> 00:50:45,040
Is that the same thing or is that different to the memory which these companies are focusing

800
00:50:45,040 --> 00:50:46,040
on?

801
00:50:46,040 --> 00:50:48,360
So the memory market is effectively too.

802
00:50:48,360 --> 00:50:54,200
It's DRAM, so it's like dynamic memory, moving it in and out.

803
00:50:54,200 --> 00:50:58,580
And then you have NAND, which is you storing it and saving it there.

804
00:50:58,580 --> 00:51:03,200
And they're the two different parts of what makes the memory market.

805
00:51:03,200 --> 00:51:11,360
And we've been operating in these technology node called DDR4, then we moved to DDR5.

806
00:51:11,360 --> 00:51:14,960
And now we're moving to HBM, high bandwidth memory.

807
00:51:14,960 --> 00:51:21,040
And really what high bandwidth memory is just very simplistic is we're just stacking more

808
00:51:21,040 --> 00:51:22,040
memory.

809
00:51:22,040 --> 00:51:23,820
We're making like a tower of it.

810
00:51:23,820 --> 00:51:26,400
So we're going to a stacking model.

811
00:51:26,400 --> 00:51:30,500
So it just requires now a bit of an investment cycle.

812
00:51:30,500 --> 00:51:34,080
It requires just a little bit of how do we make this work?

813
00:51:34,080 --> 00:51:43,360
Because the GPUs are so powerful, you are solving for latency.

814
00:51:43,360 --> 00:51:49,840
You want the information to move back and forth between processor and memory as low

815
00:51:49,840 --> 00:51:50,840
as possible.

816
00:51:50,840 --> 00:51:53,680
And it's very memory, they're very memory intensive as well, because they're doing so

817
00:51:53,680 --> 00:51:58,600
much the GPU is doing so many calculations so fast, it needs to move back and forth so

818
00:51:58,600 --> 00:51:59,720
intensely.

819
00:51:59,720 --> 00:52:04,760
So it is an architect change from the prior era that we've been in, which has been the

820
00:52:04,760 --> 00:52:05,760
CPU era.

821
00:52:05,760 --> 00:52:13,760
And the CPU era, it's been more about single processing of tasks to now multi processing

822
00:52:13,760 --> 00:52:14,760
of a task.

823
00:52:14,760 --> 00:52:17,720
And that's what the GPU really solves for.

824
00:52:17,720 --> 00:52:23,320
It can really do incredible amount of calculations so fast.

825
00:52:23,320 --> 00:52:27,200
And inside the GPU, it's not just the memory you're solving for, you're also solving for

826
00:52:27,200 --> 00:52:30,480
the whole equipment, the networking.

827
00:52:30,480 --> 00:52:36,240
So Nvidia is leading the game because they effectively have solved for networking and

828
00:52:36,240 --> 00:52:39,080
the chip.

829
00:52:39,080 --> 00:52:44,600
And they can sell you the whole box in one go, which is why they've been very successful

830
00:52:44,600 --> 00:52:47,240
in taking a lot of market share very early.

831
00:52:47,240 --> 00:52:50,000
This space is just absolutely fascinating.

832
00:52:50,000 --> 00:52:51,840
It blows my mind a little bit.

833
00:52:51,840 --> 00:52:52,840
Lots to unpack.

834
00:52:52,840 --> 00:52:55,920
But there's lots of things in your portfolio.

835
00:52:55,920 --> 00:53:02,560
So the list of your portfolio, which you cover, what else is in the portfolio currently?

836
00:53:02,560 --> 00:53:04,360
What else is exciting you?

837
00:53:04,360 --> 00:53:13,280
Yeah, I mean, look, the other thing that's exciting us is select parts of emerging markets.

838
00:53:13,280 --> 00:53:18,820
So taking a bit of a different tact here, we're looking for marathon runners.

839
00:53:18,820 --> 00:53:23,640
So we talked about the long term opportunity in US housing, why Builders First Sources

840
00:53:23,640 --> 00:53:30,280
is well positioned or Lambs Research is well positioned in the structural growth in memory,

841
00:53:30,280 --> 00:53:33,040
providing a very mission critical equipment.

842
00:53:33,040 --> 00:53:40,720
In the case of emerging markets, countries like India are, and I've got to be honest

843
00:53:40,720 --> 00:53:45,440
here, if you tell me if I'm having a bias, the emerging markets we're most excited about

844
00:53:45,440 --> 00:53:49,720
are India and Brazil, probably India first.

845
00:53:49,720 --> 00:53:51,960
Demographics are very healthy for both countries.

846
00:53:51,960 --> 00:53:54,560
Our debt to GDP is very low.

847
00:53:54,560 --> 00:53:59,560
In the case of India, the structural reform story has been fantastic.

848
00:53:59,560 --> 00:54:03,800
And the fiscal situation, that's probably the one knock on Brazil, the fiscal situation

849
00:54:03,800 --> 00:54:06,000
needs to be controlled.

850
00:54:06,000 --> 00:54:09,620
But in India, the fiscal situation is in a good position.

851
00:54:09,620 --> 00:54:12,280
And so the economy is booming.

852
00:54:12,280 --> 00:54:18,360
And the way we've sort of thinking about playing it is, look, there's really two big opportunities.

853
00:54:18,360 --> 00:54:23,840
People want to just buy a home and get into that home ownership market.

854
00:54:23,840 --> 00:54:29,440
But rather than owning home builders, the way we're playing it is owning retail banks

855
00:54:29,440 --> 00:54:30,440
in India.

856
00:54:30,440 --> 00:54:32,400
The more boring the better.

857
00:54:32,400 --> 00:54:35,160
So retail is very boring.

858
00:54:35,160 --> 00:54:38,760
It's very sticky type of business.

859
00:54:38,760 --> 00:54:42,840
And there's effectively only three to four companies that can do it in the retail banking

860
00:54:42,840 --> 00:54:43,840
market.

861
00:54:43,840 --> 00:54:45,200
And we own a company called ICICI.

862
00:54:45,200 --> 00:54:49,920
It's a company I've owned for about eight years.

863
00:54:49,920 --> 00:54:54,960
It's compounded in the mid to high teens over that time.

864
00:54:54,960 --> 00:54:57,220
So it's doing fantastically well.

865
00:54:57,220 --> 00:55:01,440
It's outperformed a lot of global banks, but it's actually competing against a lot of our

866
00:55:01,440 --> 00:55:03,120
global technology companies.

867
00:55:03,120 --> 00:55:05,000
So it's very overlooked.

868
00:55:05,000 --> 00:55:07,600
They don't do anything very complicated.

869
00:55:07,600 --> 00:55:13,040
Their business model is all about getting low cost deposits, making a spread and doing

870
00:55:13,040 --> 00:55:18,880
very, you know, ensuring very effective risk adjusted lending is occurring.

871
00:55:18,880 --> 00:55:25,400
So they do primarily mortgages that are secured against the home for high to middle income

872
00:55:25,400 --> 00:55:26,840
earners in India.

873
00:55:26,840 --> 00:55:31,600
So typically cohorts that have just entered the property market, they've just got a job,

874
00:55:31,600 --> 00:55:38,080
they're earning good money, they're professional service individuals, and ICICI is just serving

875
00:55:38,080 --> 00:55:39,480
that demand.

876
00:55:39,480 --> 00:55:46,080
And so just to give context, all household debt to GDP in India is about 11%.

877
00:55:46,080 --> 00:55:49,640
And I mean, forget about Australia, but China is about 60%.

878
00:55:49,640 --> 00:55:55,080
So India is so far behind its biggest, you know, neighbor.

879
00:55:55,080 --> 00:56:02,320
Other countries like Thailand and South Korea are like between 30 to 80.

880
00:56:02,320 --> 00:56:05,640
So even in the Asian region, India is just so far behind.

881
00:56:05,640 --> 00:56:12,000
So we just think there's a lot of runway here for growth in the mortgage market.

882
00:56:12,000 --> 00:56:18,040
And ICICI is just very well positioned, return on capitals in the high teens, P ratio about

883
00:56:18,040 --> 00:56:19,040
14 times.

884
00:56:19,040 --> 00:56:26,000
So cheaper than CBA, but growing a lot faster than CBA in comparison when you think bank

885
00:56:26,000 --> 00:56:27,700
to bank.

886
00:56:27,700 --> 00:56:29,800
It's quite interesting what's happening in India.

887
00:56:29,800 --> 00:56:32,800
I had a gentleman who specializes in resources.

888
00:56:32,800 --> 00:56:37,280
And he said that if you were in iron ore last year, you know, you thought you may have done

889
00:56:37,280 --> 00:56:40,520
quite poorly because what's happening, you know, with as you mentioned, the collapse

890
00:56:40,520 --> 00:56:43,920
of the property market in China and the problems they're having.

891
00:56:43,920 --> 00:56:46,960
But everyone kind of got a pleasant surprise, didn't they?

892
00:56:46,960 --> 00:56:49,160
And that was courtesy of our good friends in India.

893
00:56:49,160 --> 00:56:50,560
Like apparently India is booming.

894
00:56:50,560 --> 00:56:53,680
Yes, they produce a lot of these resources themselves.

895
00:56:53,680 --> 00:57:02,160
But is it true that their demand for these resources to expand their building is outpacing

896
00:57:02,160 --> 00:57:04,400
the supply that they're currently producing internally?

897
00:57:04,400 --> 00:57:10,000
And then thus the banks and as you mentioned, potentially benefiting from that growth?

898
00:57:10,000 --> 00:57:11,440
Is that what's happening?

899
00:57:11,440 --> 00:57:14,520
Or it absolutely is.

900
00:57:14,520 --> 00:57:16,120
And it's happening off a low base.

901
00:57:16,120 --> 00:57:24,440
So you know, in terms of context, China is approximately a 20 trillion dollar economy,

902
00:57:24,440 --> 00:57:26,800
might be slightly lower than that.

903
00:57:26,800 --> 00:57:30,280
50% of China's GDP comes from fixed asset investment.

904
00:57:30,280 --> 00:57:34,840
So you're talking about nine to 10 trillion dollars coming from fixed asset investment,

905
00:57:34,840 --> 00:57:40,000
which is largely three things, housing, manufacturing, and infrastructure.

906
00:57:40,000 --> 00:57:46,000
Now in the case of housing, we think that's kind of run its course, probably needs to

907
00:57:46,000 --> 00:57:50,100
solve itself over the next few years that supply needs to catch up with demand.

908
00:57:50,100 --> 00:57:56,720
So housing is no longer helping China's infrastructure, fixed asset investment story, which is very

909
00:57:56,720 --> 00:57:58,080
commodity heavy.

910
00:57:58,080 --> 00:58:05,840
Manufacturing, well, we know there's a reshoring to the US or reshoring to parts of like Mexico

911
00:58:05,840 --> 00:58:08,120
and other countries close to the US.

912
00:58:08,120 --> 00:58:12,880
So that other third of fixed asset investment, it's about three trillion.

913
00:58:12,880 --> 00:58:14,440
It's not getting any more market share.

914
00:58:14,440 --> 00:58:18,560
You know, if companies aren't setting up manufacturing capacity in China anymore.

915
00:58:18,560 --> 00:58:22,720
And the third one is infrastructure, which is still happening in China.

916
00:58:22,720 --> 00:58:28,240
When you come to the Indian economy, fixed asset investment as a percentage of GDP is

917
00:58:28,240 --> 00:58:30,760
like close to 15%.

918
00:58:30,760 --> 00:58:32,080
And GDP is like four trillion.

919
00:58:32,080 --> 00:58:40,160
So you just offer very much more lower basis for a population pool that is nearly the same.

920
00:58:40,160 --> 00:58:45,120
Maybe India is actually a little bit ahead of China now because China's obviously got

921
00:58:45,120 --> 00:58:48,960
demographics that are not the best right now.

922
00:58:48,960 --> 00:58:51,680
So there's a lot of demand for infrastructure.

923
00:58:51,680 --> 00:58:54,400
There's a lot of demand.

924
00:58:54,400 --> 00:58:59,280
Roads and highways and rail, there is a lot of demand for housing.

925
00:58:59,280 --> 00:59:02,720
The big question is, can India capture its share of manufacturing?

926
00:59:02,720 --> 00:59:04,640
That's the big prize out there.

927
00:59:04,640 --> 00:59:05,720
I think it will.

928
00:59:05,720 --> 00:59:11,760
I think the government's implemented very interesting reform like making India policy,

929
00:59:11,760 --> 00:59:15,480
which is effectively making India, there's fantastic tax breaks.

930
00:59:15,480 --> 00:59:22,920
You've seen the giants like Samsung, Foxconn reallocate out of China to India.

931
00:59:22,920 --> 00:59:25,680
But let's not forget, there's also a country called Vietnam.

932
00:59:25,680 --> 00:59:28,120
They're also very friendly to business.

933
00:59:28,120 --> 00:59:30,120
They're also winning a lot of that manufacturing.

934
00:59:30,120 --> 00:59:33,840
But I think it's going to be shared amongst the three countries, three countries being

935
00:59:33,840 --> 00:59:37,240
India, Vietnam, Indonesia.

936
00:59:37,240 --> 00:59:40,860
Obviously with India, it's a much more professional services country.

937
00:59:40,860 --> 00:59:43,680
So it's obviously got the large IT service providers.

938
00:59:43,680 --> 00:59:47,140
And over time, I think it will win some of that manufacturing capacity.

939
00:59:47,140 --> 00:59:52,800
So it's all coming off a very low base, which is resource supportive in the long run.

940
00:59:52,800 --> 00:59:58,520
I think we need an entire conversation just in Vietnam on another day because second time

941
00:59:58,520 --> 01:00:04,440
I've heard that there's been a huge growth and boom in the Vietnamese market, Southeast

942
01:00:04,440 --> 01:00:05,440
Asia.

943
01:00:05,440 --> 01:00:06,440
Yeah, that's quite interesting.

944
01:00:06,440 --> 01:00:07,440
I'm not going to go down there.

945
01:00:07,440 --> 01:00:08,440
I'm going to go down there.

946
01:00:08,440 --> 01:00:09,440
I'm going to go down there.

947
01:00:09,440 --> 01:00:13,000
We've got too much to unpack.

948
01:00:13,000 --> 01:00:18,680
You mentioned Brazil and then I think we'll talk into e-commerce because one of the holdings

949
01:00:18,680 --> 01:00:20,760
you have is Amazon, which you mentioned before.

950
01:00:20,760 --> 01:00:22,680
We'll definitely dig into that.

951
01:00:22,680 --> 01:00:25,000
But let's frame this differently.

952
01:00:25,000 --> 01:00:28,720
There's many different ways to do e-commerce around the world.

953
01:00:28,720 --> 01:00:32,720
You've got in Brazil, as you mentioned, you've got the Macalabra, right?

954
01:00:32,720 --> 01:00:35,600
That is done differently to how Amazon's done.

955
01:00:35,600 --> 01:00:39,240
Then you have Alibaba in China, right?

956
01:00:39,240 --> 01:00:40,240
That's the e-commerce market.

957
01:00:40,240 --> 01:00:45,160
What I'm also finding quite interesting now is e-commerce is not just the shop anymore.

958
01:00:45,160 --> 01:00:49,640
Now they're starting to sell you all the services, the ability to both borrow money and spend

959
01:00:49,640 --> 01:00:51,600
money in the same shopfront.

960
01:00:51,600 --> 01:00:54,920
Then you also have, what's the name of the Chinese one?

961
01:00:54,920 --> 01:00:57,560
It starts with a W. WeChat.

962
01:00:57,560 --> 01:00:58,560
WeChat, right?

963
01:00:58,560 --> 01:01:02,000
Then you've got Elon Musk coming out with Twitter saying that he wants to essentially

964
01:01:02,000 --> 01:01:06,560
mimic what WeChat's done so successfully, which is have a community then also supply

965
01:01:06,560 --> 01:01:10,160
credit like Stripe and all these particular businesses.

966
01:01:10,160 --> 01:01:14,440
This entire ecosystem, it's not necessarily just like you're discussing with the computer

967
01:01:14,440 --> 01:01:15,440
chips.

968
01:01:15,440 --> 01:01:18,760
There's one particular company doing everything in a jank.

969
01:01:18,760 --> 01:01:22,360
Is that correct that what we're starting to see now in e-commerce is you've captured a

970
01:01:22,360 --> 01:01:23,360
particular market.

971
01:01:23,360 --> 01:01:27,840
Now everyone's just trying to vertically and horizontally integrate across as much of the

972
01:01:27,840 --> 01:01:28,960
pie as they can grab.

973
01:01:28,960 --> 01:01:29,960
Is that what's happening?

974
01:01:29,960 --> 01:01:38,120
It's a really interesting topic because I think you said it, e-commerce has been done

975
01:01:38,120 --> 01:01:41,640
differently in different countries.

976
01:01:41,640 --> 01:01:47,080
In the case of let's say China, the Chinese shopping experience was never very good in

977
01:01:47,080 --> 01:01:49,240
the shopping malls.

978
01:01:49,240 --> 01:01:54,360
It didn't take much for the Chinese consumers who were already very digitally savvy to go,

979
01:01:54,360 --> 01:02:00,840
well, I can now buy this on my phone and I can get access to the entire Chinese merchant

980
01:02:00,840 --> 01:02:08,240
base through Taobao or T-Mall, the two apps within Alibaba.

981
01:02:08,240 --> 01:02:14,280
You had JD for electronics, then you had the rise of PDD, which was social commerce and

982
01:02:14,280 --> 01:02:16,000
that's now T-Mu in the West.

983
01:02:16,000 --> 01:02:18,760
Oh dear God, don't get me started on T-Mu.

984
01:02:18,760 --> 01:02:25,880
There's all these interesting things, but in other markets like let's say Brazil, we

985
01:02:25,880 --> 01:02:29,920
say Brazil and the US are probably more similar in terms of e-commerce markets.

986
01:02:29,920 --> 01:02:35,320
In the case of Southeast Asia with Sea Limited, Sea Limited is probably more similar to the

987
01:02:35,320 --> 01:02:39,760
Chinese and Tencent's been a big backer.

988
01:02:39,760 --> 01:02:40,920
It's been done differently.

989
01:02:40,920 --> 01:02:46,880
The whole concept of super app, which is what you've touched on, is what has been more successful

990
01:02:46,880 --> 01:02:49,440
in China.

991
01:02:49,440 --> 01:02:54,000
That's largely because there weren't any many alternatives.

992
01:02:54,000 --> 01:02:56,840
What do I mean by that?

993
01:02:56,840 --> 01:03:02,160
Social services was not done well in China, payments was not done well in China, retailing

994
01:03:02,160 --> 01:03:03,160
was not done well.

995
01:03:03,160 --> 01:03:10,300
There was an ability to solve all those problems in one app and Alibaba and Tencent did that

996
01:03:10,300 --> 01:03:11,300
very well.

997
01:03:11,300 --> 01:03:16,760
They both have payment rails, they both have some form of e-commerce, but in the West,

998
01:03:16,760 --> 01:03:20,920
that's been less of a problem because financial markets are more mature in the West, banking

999
01:03:20,920 --> 01:03:25,000
services and payments are very, very effective in the West.

1000
01:03:25,000 --> 01:03:31,280
There's really only been an opportunity for e-commerce and similarly in Brazil.

1001
01:03:31,280 --> 01:03:38,840
So, Mercado Libre is more like Amazon versus in the East, those companies are more like

1002
01:03:38,840 --> 01:03:42,680
the super app model.

1003
01:03:42,680 --> 01:03:47,320
Even within e-commerce, I would say, or even within all these businesses, we do like Mercado

1004
01:03:47,320 --> 01:03:48,360
Libre.

1005
01:03:48,360 --> 01:03:53,240
We do think it's got a logistics moat similar to Amazon.

1006
01:03:53,240 --> 01:03:57,480
Maybe not quite to the same extent, but to some degree.

1007
01:03:57,480 --> 01:04:03,040
They've got a very strong value proposition for the customer, convenience, breadth of

1008
01:04:03,040 --> 01:04:07,920
offering, they have densified their network.

1009
01:04:07,920 --> 01:04:11,920
But the Brazilian consumer is very value for money and conscious.

1010
01:04:11,920 --> 01:04:15,680
So there's always room for a second player in the market to emerge.

1011
01:04:15,680 --> 01:04:20,800
Well, speaking of the second player, the second player ended up going bankrupt, lost what,

1012
01:04:20,800 --> 01:04:24,320
80 something percent of their market share because they got done for what was a tax fraud.

1013
01:04:24,320 --> 01:04:27,600
Their books weren't really up to scratch.

1014
01:04:27,600 --> 01:04:33,320
That was a couple of years ago and I believe they've been essentially absorbing, naturally,

1015
01:04:33,320 --> 01:04:34,320
a lot of that.

1016
01:04:34,320 --> 01:04:35,320
Market share, yeah.

1017
01:04:35,320 --> 01:04:36,320
So Mercado Libre.

1018
01:04:36,320 --> 01:04:41,840
Do they have, sorry, the question is, is there now a second player that's absorbed that second

1019
01:04:41,840 --> 01:04:43,360
player thing or has that just vanished?

1020
01:04:43,360 --> 01:04:46,200
Now there's a void and they've just soaked that up.

1021
01:04:46,200 --> 01:04:55,120
So I would say Tmoo has an opportunity, which is the PDD, the Chinese app operating globally.

1022
01:04:55,120 --> 01:05:01,160
Look, Tmoo has lost a little bit of momentum in the United States because, not because

1023
01:05:01,160 --> 01:05:02,160
it's not a group.

1024
01:05:02,160 --> 01:05:03,160
Same reason like TikTok.

1025
01:05:03,160 --> 01:05:05,080
It's exactly the same reason.

1026
01:05:05,080 --> 01:05:06,360
It's essentially Chinese Bioware.

1027
01:05:06,360 --> 01:05:08,800
But let's be honest, Google's doing the exact same thing.

1028
01:05:08,800 --> 01:05:09,800
Everyone's doing it, right?

1029
01:05:09,800 --> 01:05:10,800
It's data capture.

1030
01:05:10,800 --> 01:05:13,720
But you go read those contracts where you're signing, how everyone ticks the box and doesn't

1031
01:05:13,720 --> 01:05:14,720
read everything.

1032
01:05:14,720 --> 01:05:18,400
And you're literally, if you work for the government and you sign up TikTok or Tmoo

1033
01:05:18,400 --> 01:05:20,680
on your phone, you literally just gave away government secrets.

1034
01:05:20,680 --> 01:05:21,680
Nice work, everyone.

1035
01:05:21,680 --> 01:05:22,680
Go read the contract.

1036
01:05:22,680 --> 01:05:23,680
No, that's right.

1037
01:05:23,680 --> 01:05:29,760
So as a result, the Tmoo management team has not, I wouldn't say deprioritized America

1038
01:05:29,760 --> 01:05:30,760
or US.

1039
01:05:30,760 --> 01:05:32,480
It's still a big market.

1040
01:05:32,480 --> 01:05:33,480
Let's be honest.

1041
01:05:33,480 --> 01:05:37,800
I think it's in terms of a gross merchandise value, it could be half.

1042
01:05:37,800 --> 01:05:44,520
So they're not going to ignore the US, but they're refocusing down to Mexico, Latin America,

1043
01:05:44,520 --> 01:05:47,280
because, look, I'll tell you why.

1044
01:05:47,280 --> 01:05:51,480
The Tmoo value proposition is very heavily centered around value for money.

1045
01:05:51,480 --> 01:05:53,960
I don't mind receiving my goods in two weeks.

1046
01:05:53,960 --> 01:05:56,120
We discussed the value for money.

1047
01:05:56,120 --> 01:05:58,360
I'm being straight with you here.

1048
01:05:58,360 --> 01:06:01,400
I've nearly bought it a couple of times.

1049
01:06:01,400 --> 01:06:03,720
Say there's, I don't know, I go to a four year old and a six year old, there's a whole

1050
01:06:03,720 --> 01:06:04,720
lot of birthdays running around.

1051
01:06:04,720 --> 01:06:07,560
Jesus Christ, you get so many birthdays.

1052
01:06:07,560 --> 01:06:11,200
But it is quite appealing when you're looking at something that's Amazon, like, I don't

1053
01:06:11,200 --> 01:06:15,480
know, Spider-Man, you know, webs, you know, with a Nerf retain, that goes to like 30 to

1054
01:06:15,480 --> 01:06:16,480
$40.

1055
01:06:16,480 --> 01:06:22,640
You go on to Tmoo, that's like $6, $8, $9.

1056
01:06:22,640 --> 01:06:26,160
And you add up the number of birthday parties you have and how many kids are in that class

1057
01:06:26,160 --> 01:06:28,440
and you're doing that every single year.

1058
01:06:28,440 --> 01:06:31,000
For families, that's thousands of dollars.

1059
01:06:31,000 --> 01:06:33,360
Like that's quite appealing.

1060
01:06:33,360 --> 01:06:39,680
Doesn't matter if you live in a jet or you live in a caravan.

1061
01:06:39,680 --> 01:06:41,560
That's quite appealing for a lot of families.

1062
01:06:41,560 --> 01:06:42,560
Absolutely.

1063
01:06:42,560 --> 01:06:45,520
And they must know for sure which is the reason why they're doing it because their main interest

1064
01:06:45,520 --> 01:06:48,080
is not in the money, it's probably in the data capture.

1065
01:06:48,080 --> 01:06:49,080
Absolutely.

1066
01:06:49,080 --> 01:06:52,960
So I think for Tmoo, the US is an important market.

1067
01:06:52,960 --> 01:06:54,820
But I wouldn't say that's the only market.

1068
01:06:54,820 --> 01:07:02,140
I think they've done a good job in pivoting to Latam, Middle East, and Eastern Europe.

1069
01:07:02,140 --> 01:07:07,440
So they are, in a way, doing, you know, I think in a way where they probably think they'll

1070
01:07:07,440 --> 01:07:11,880
face the least amount of political scrutiny.

1071
01:07:11,880 --> 01:07:15,260
As you rightly pointed out, TikTok is very politicized.

1072
01:07:15,260 --> 01:07:18,480
So it's not going to take much to start politicizing Tmoo.

1073
01:07:18,480 --> 01:07:23,100
And so I think they've just got a good plan B. They've got plan B and plan C and plan

1074
01:07:23,100 --> 01:07:25,200
D and all these other emerging markets.

1075
01:07:25,200 --> 01:07:31,440
So as a result, we still think Mercado Libre has a position.

1076
01:07:31,440 --> 01:07:35,100
We still think Amazon is very well positioned in the US.

1077
01:07:35,100 --> 01:07:37,860
You know, the great thing, the difference, I would say, you know, we said e-commerce

1078
01:07:37,860 --> 01:07:39,560
is done a little bit differently.

1079
01:07:39,560 --> 01:07:45,280
Well, what Amazon has really done is Amazon has not only it's got really three businesses,

1080
01:07:45,280 --> 01:07:50,280
it's got e-commerce, it's got Amazon Web Services, which we you know, which has been a highly

1081
01:07:50,280 --> 01:07:51,800
successful business.

1082
01:07:51,800 --> 01:07:56,400
But the one that's been really just the massive driver of revenue over the past few years

1083
01:07:56,400 --> 01:07:58,920
is advertising.

1084
01:07:58,920 --> 01:08:05,600
Advertising and subscriptions are now as large as Amazon Web Services in terms of revenue.

1085
01:08:05,600 --> 01:08:09,840
And if you think about e-commerce, e-commerce is not a high margin business model, you'd

1086
01:08:09,840 --> 01:08:17,160
be lucky to be punching out two to 5% operating profit margin in a pre-tax operating profit

1087
01:08:17,160 --> 01:08:18,760
margin.

1088
01:08:18,760 --> 01:08:23,860
But in the case of Amazon Web Services, that's probably a 30% operating margin business.

1089
01:08:23,860 --> 01:08:28,000
And advertising is probably an 80% operating profit margin business.

1090
01:08:28,000 --> 01:08:32,160
Sorry, did you say the profit margin in advertising is 80%?

1091
01:08:32,160 --> 01:08:38,400
Well we think in the case of Amazon, yes, because it's a very high intent advertising

1092
01:08:38,400 --> 01:08:39,800
model.

1093
01:08:39,800 --> 01:08:46,240
I go on for a tennis racket, and I'm pretty much going to buy one on Amazon, right?

1094
01:08:46,240 --> 01:08:50,200
So you know, you really want to be really want to be there advertising those dollars

1095
01:08:50,200 --> 01:08:51,200
trying to capture that.

1096
01:08:51,200 --> 01:08:55,120
Well, Ozkicks kicking off on the weekend, I'm coaching on 60s bit of fun.

1097
01:08:55,120 --> 01:08:58,160
So I literally googled, I need a whistle.

1098
01:08:58,160 --> 01:09:00,840
I don't want to know Amazon Prime, it was like $7.50.

1099
01:09:00,840 --> 01:09:04,320
And like there was two in the pack, and I just hit buy and it turned up my door the

1100
01:09:04,320 --> 01:09:05,320
next day.

1101
01:09:05,320 --> 01:09:07,400
I'm like, that is just way too easy.

1102
01:09:07,400 --> 01:09:09,600
So it's very easy.

1103
01:09:09,600 --> 01:09:16,320
That's the amazing thing about the model that they've built such an incredible moat in logistics.

1104
01:09:16,320 --> 01:09:22,040
You know, in the two years of 2021 to 2022, when they did that huge build out of, they

1105
01:09:22,040 --> 01:09:24,200
built a UPS inside the business model.

1106
01:09:24,200 --> 01:09:26,240
I mean, not many companies can do that.

1107
01:09:26,240 --> 01:09:30,120
And it came back earlier to our conversation about the culture of the of the business to

1108
01:09:30,120 --> 01:09:37,600
be able to pivot at those levels, that size requires a management team and a culture that

1109
01:09:37,600 --> 01:09:39,180
allows you to do that.

1110
01:09:39,180 --> 01:09:44,840
But if we sort of look forward now in Amazon, the market thinks about Amazon, oh, it's a

1111
01:09:44,840 --> 01:09:50,200
mid single, high single digit margin business, we actually think it's going to go to double

1112
01:09:50,200 --> 01:09:56,960
digits, largely because advertising and Amazon Web Services incrementally, are just, you

1113
01:09:56,960 --> 01:10:00,520
know, much higher margin businesses than Ecom.

1114
01:10:00,520 --> 01:10:05,320
And Ecom Ecommerce is going to be a stable bedrock for Amazon, it's going to allow for

1115
01:10:05,320 --> 01:10:07,520
more advertising to come through.

1116
01:10:07,520 --> 01:10:09,460
But we still think there's a lot more runway.

1117
01:10:09,460 --> 01:10:14,200
And also with Amazon Web Services, there's been a perception that it's been left behind

1118
01:10:14,200 --> 01:10:15,200
by OpenAI.

1119
01:10:15,200 --> 01:10:21,080
And I think those I think that's a little bit, you know, I think that's a bit unfair.

1120
01:10:21,080 --> 01:10:26,480
I think Amazon's actually going to make a big comeback in that part of the market as

1121
01:10:26,480 --> 01:10:27,480
well.

1122
01:10:27,480 --> 01:10:29,120
I've got a personal question with you with Amazon, right?

1123
01:10:29,120 --> 01:10:30,120
You may know the answer.

1124
01:10:30,120 --> 01:10:35,280
You know how you purchase Amazon Prime, it's like six bucks a month, it's nothing and then

1125
01:10:35,280 --> 01:10:40,600
you get the content, but then you get free postage.

1126
01:10:40,600 --> 01:10:46,920
I've always wondered, is that, do they make money there or is that just an advertising

1127
01:10:46,920 --> 01:10:48,760
means?

1128
01:10:48,760 --> 01:10:51,480
So when you're watching Amazon, you remember, oh, you know, I'm going to buy through Amazon.

1129
01:10:51,480 --> 01:10:54,440
I'm wondering, is that, is that actually profitable?

1130
01:10:54,440 --> 01:10:55,840
That particular deal?

1131
01:10:55,840 --> 01:10:57,520
It's always been in the back of my mind.

1132
01:10:57,520 --> 01:10:58,520
Prime Video.

1133
01:10:58,520 --> 01:11:01,560
It will get Prime Video, you pay six bucks a month or whatever it is.

1134
01:11:01,560 --> 01:11:03,240
But then you get free delivery.

1135
01:11:03,240 --> 01:11:05,000
And everyone knows how much delivery costs.

1136
01:11:05,000 --> 01:11:08,760
But the fact, as you mentioned, they built their own UPS, maybe they can absorb those.

1137
01:11:08,760 --> 01:11:13,240
I've always wondered if that's actually been profitable.

1138
01:11:13,240 --> 01:11:17,760
Like they're literally giving away free delivery with Amazon Prime membership.

1139
01:11:17,760 --> 01:11:19,160
It's always been in the back of my mind.

1140
01:11:19,160 --> 01:11:23,440
Well, this is the really interesting thing about Amazon.

1141
01:11:23,440 --> 01:11:24,920
They don't break it out.

1142
01:11:24,920 --> 01:11:25,920
If I'm honest.

1143
01:11:25,920 --> 01:11:29,240
Right, they won't break that down into that level of granularity.

1144
01:11:29,240 --> 01:11:33,880
But what we can observe when we go through the accounts is there's about 30 billion of

1145
01:11:33,880 --> 01:11:36,160
losses sitting inside Amazon.

1146
01:11:36,160 --> 01:11:43,520
So if you think about everyone gave Meta a hard time investing, whatever it was, Amazon

1147
01:11:43,520 --> 01:11:48,400
spending 25, 30 billion dollars on what is called other bets.

1148
01:11:48,400 --> 01:11:54,520
And even with those 25, 30 billion dollar losses, they still are walking away with a

1149
01:11:54,520 --> 01:11:56,800
six to seven percent operating margin.

1150
01:11:56,800 --> 01:12:01,600
We think it's going to go to, you know, low teens because of advertising.

1151
01:12:01,600 --> 01:12:06,080
It's such a profitable company that they can absorb this.

1152
01:12:06,080 --> 01:12:08,460
So the question is why are they spending money on Prime?

1153
01:12:08,460 --> 01:12:13,240
It's a bit to your point that they want to build the brand.

1154
01:12:13,240 --> 01:12:18,440
They want you to be thinking about them as a potential alternative to Netflix.

1155
01:12:18,440 --> 01:12:21,360
It locks you in with a free delivery.

1156
01:12:21,360 --> 01:12:23,580
But it is part of the advertising model, right?

1157
01:12:23,580 --> 01:12:26,600
You are collecting more data on the users.

1158
01:12:26,600 --> 01:12:31,960
You're seeing their shopping habits, their viewing habits.

1159
01:12:31,960 --> 01:12:35,440
It allows you to just bring them build a more powerful advertising.

1160
01:12:35,440 --> 01:12:40,560
It's a super app you were essentially referring to, right?

1161
01:12:40,560 --> 01:12:41,840
It's an element of a super app.

1162
01:12:41,840 --> 01:12:43,880
And obviously they're missing the social.

1163
01:12:43,880 --> 01:12:47,640
They don't have a they obviously we don't all talk to each other on our Amazon chats.

1164
01:12:47,640 --> 01:12:48,640
Obviously, that's Facebook.

1165
01:12:48,640 --> 01:12:53,040
But at the same time, they've got very strong partnerships with Facebook.

1166
01:12:53,040 --> 01:13:01,480
I should say Meta where you can start buying Amazon goods off Instagram through clicking

1167
01:13:01,480 --> 01:13:02,480
through.

1168
01:13:02,480 --> 01:13:06,400
So in the West, no one's built the super app.

1169
01:13:06,400 --> 01:13:07,880
It's tough.

1170
01:13:07,880 --> 01:13:09,600
Everyone's carved out a niche.

1171
01:13:09,600 --> 01:13:14,920
But ultimately, Amazon, the two business models that Amazon that are very under looked, it's

1172
01:13:14,920 --> 01:13:16,920
advertising, which is just very high margin.

1173
01:13:16,920 --> 01:13:20,320
And we think then Amazon Web Services will make a comeback.

1174
01:13:20,320 --> 01:13:29,320
Yeah, that entire space really just blows my mind and what's currently happening there.

1175
01:13:29,320 --> 01:13:33,120
Is there any other opportunity you're currently seeing in the market or in the portfolio?

1176
01:13:33,120 --> 01:13:38,360
Oh, look, I think, you know, from from our point of view, the way we you know, we're

1177
01:13:38,360 --> 01:13:41,160
always looking for these marathon runners.

1178
01:13:41,160 --> 01:13:44,920
We think, you know, Amazon or ICICI bank, they got long marathons to run.

1179
01:13:44,920 --> 01:13:45,920
They're in good market positions.

1180
01:13:45,920 --> 01:13:52,000
They add a lot of value to the consumer or enterprise.

1181
01:13:52,000 --> 01:13:56,480
We definitely have got, you know, interest in China.

1182
01:13:56,480 --> 01:14:02,920
It is a tough macro environment.

1183
01:14:02,920 --> 01:14:07,080
Companies like Tmoo and PDD are on our watch list.

1184
01:14:07,080 --> 01:14:12,400
Companies in Brazil are on our watch list as market, you know, if a market opportunity

1185
01:14:12,400 --> 01:14:15,300
comes up.

1186
01:14:15,300 --> 01:14:22,240
But to be really honest, the big disappointment, you know, so, you know, the average P of the

1187
01:14:22,240 --> 01:14:23,920
market could be high.

1188
01:14:23,920 --> 01:14:27,320
But within that, there's a lot of multiple dispersion.

1189
01:14:27,320 --> 01:14:32,240
And a lot of companies that were once considered structural growers have had a hiccup.

1190
01:14:32,240 --> 01:14:38,760
So in the beauty, in the luxury space, in the global alcohol space, which are some very

1191
01:14:38,760 --> 01:14:39,760
high quality brands.

1192
01:14:39,760 --> 01:14:43,160
And so we've got our eye on a lot of those businesses that have, you know, they fit our

1193
01:14:43,160 --> 01:14:50,640
bill as in high quality, dominating a particular part of their industry and have runways for

1194
01:14:50,640 --> 01:14:54,520
growth, but for maybe cyclical reasons have fallen out of favor.

1195
01:14:54,520 --> 01:14:58,520
So we're spending, you know, we're sharpening the pencil on a lot of those names.

1196
01:14:58,520 --> 01:15:03,080
Well in this, in global equities, as they say, the dog wax a tail, not the other way

1197
01:15:03,080 --> 01:15:04,080
around.

1198
01:15:04,080 --> 01:15:07,680
So if stocks being the tail, the dogs, you know, the good old fashioned bond market,

1199
01:15:07,680 --> 01:15:12,280
the 10 year bond, there's been US rates were on hold.

1200
01:15:12,280 --> 01:15:18,560
What's been happening globally, I think there's been some chatter regarding, I think, ISM

1201
01:15:18,560 --> 01:15:24,840
data came out and, you know, everyone's saying they're forecasting that there's going to

1202
01:15:24,840 --> 01:15:26,640
be cuts starting this year.

1203
01:15:26,640 --> 01:15:30,920
But let's see if that actually happens or not.

1204
01:15:30,920 --> 01:15:35,880
I'd love to hear your thoughts on what's happening in global markets, you know, monetary

1205
01:15:35,880 --> 01:15:38,460
policy, fiscal policy.

1206
01:15:38,460 --> 01:15:44,080
But I suppose where my question is really coming from, just to paint the picture, if

1207
01:15:44,080 --> 01:15:48,840
this was after COVID, what was that like?

1208
01:15:48,840 --> 01:15:50,960
2021, I believe it was.

1209
01:15:50,960 --> 01:15:56,120
And then everything whipped so high up, you know, all that funny money was in fear missing

1210
01:15:56,120 --> 01:15:57,120
out was rampant.

1211
01:15:57,120 --> 01:16:00,760
People were just spend, spend, spend, not caring about tomorrow.

1212
01:16:00,760 --> 01:16:03,120
And then the market collapsed.

1213
01:16:03,120 --> 01:16:04,720
Right?

1214
01:16:04,720 --> 01:16:06,960
What's different now?

1215
01:16:06,960 --> 01:16:08,360
It's almost like a two speed economy.

1216
01:16:08,360 --> 01:16:13,440
There's a whole number of companies like the Magnificent Seven that are doing very, very

1217
01:16:13,440 --> 01:16:20,440
well and have pretty much dragged the Nasdaq and the Russell back up to all time highs.

1218
01:16:20,440 --> 01:16:21,440
Right?

1219
01:16:21,440 --> 01:16:26,040
Meanwhile, there's this underbelly of quality companies that can barely catch a bid.

1220
01:16:26,040 --> 01:16:31,480
But a lot of the asset managers like yourself and other fields, looking at these companies

1221
01:16:31,480 --> 01:16:36,600
is saying, hold on a second, they're better run now than they were when all the funny

1222
01:16:36,600 --> 01:16:38,760
money was going into them.

1223
01:16:38,760 --> 01:16:41,240
But everyone's feeling poor and no one wants to stick the capital in.

1224
01:16:41,240 --> 01:16:44,880
And the valuations in this are so much lower than they were.

1225
01:16:44,880 --> 01:16:47,680
Everyone's potentially making less money internally.

1226
01:16:47,680 --> 01:16:48,960
They've tightened the belt.

1227
01:16:48,960 --> 01:16:50,120
Profit margins are higher.

1228
01:16:50,120 --> 01:16:53,000
They're looking healthier than ever, but they can't catch a bid.

1229
01:16:53,000 --> 01:16:58,880
So I suppose one question that's on my mind is you're looking at the Russell, the Nasdaq

1230
01:16:58,880 --> 01:17:00,960
bopping around in this all time high.

1231
01:17:00,960 --> 01:17:06,020
Do you think this is going to break out because the second part of the market, which hasn't

1232
01:17:06,020 --> 01:17:13,000
really moved yet, is to come, or do you think that we're getting a double top here and we

1233
01:17:13,000 --> 01:17:14,000
might be seeing some downside?

1234
01:17:14,000 --> 01:17:17,800
I'd love to hear your opinion on what you think's happening with Global.

1235
01:17:17,800 --> 01:17:21,520
Yeah, a lot in that, which I like.

1236
01:17:21,520 --> 01:17:25,400
So I think you are right.

1237
01:17:25,400 --> 01:17:32,760
We've gone from the market has had this obsession with the Magnificent 7.

1238
01:17:32,760 --> 01:17:37,360
But I would say the Magnificent 7 have now become maybe the Fabulous 4.

1239
01:17:37,360 --> 01:17:41,840
And there's a very clear reason why.

1240
01:17:41,840 --> 01:17:48,760
Apple, Tesla have disappointed on earnings, really have disappointed on earnings.

1241
01:17:48,760 --> 01:17:54,760
Both stocks were excellent performers in 2023, but they were poor performers in 2022.

1242
01:17:54,760 --> 01:17:58,480
So if we sort of just look back, you go, well, you had a tough 2022, you had a relief rally

1243
01:17:58,480 --> 01:17:59,480
in 2023.

1244
01:17:59,480 --> 01:18:02,560
And I think 2024 is more about the earnings.

1245
01:18:02,560 --> 01:18:05,200
The earnings divergence, I would say.

1246
01:18:05,200 --> 01:18:10,280
And the companies that have delivered strong earnings divergence, or I'd say delivered

1247
01:18:10,280 --> 01:18:12,400
strong earnings, have kept going.

1248
01:18:12,400 --> 01:18:17,580
So that's your Facebooks or Metas, even Microsoft's.

1249
01:18:17,580 --> 01:18:23,440
And even within, say, large cap software, which is historically in that 2021 period,

1250
01:18:23,440 --> 01:18:28,600
2022 period, they all had a huge move, as you rightly pointed out.

1251
01:18:28,600 --> 01:18:33,080
But even within global large cap software, there's winners and losers.

1252
01:18:33,080 --> 01:18:38,400
There are companies that are better exposed to the changes we're seeing in AI, and there's

1253
01:18:38,400 --> 01:18:40,360
some that are perhaps lagging.

1254
01:18:40,360 --> 01:18:43,200
There's potentially business models that are going to get challenged.

1255
01:18:43,200 --> 01:18:44,840
There's a lot of debate around Adobe.

1256
01:18:44,840 --> 01:18:48,880
I don't know if that debate's right or not, but it's interesting the market is much more

1257
01:18:48,880 --> 01:18:50,040
skeptical.

1258
01:18:50,040 --> 01:18:54,600
I would say in 2020 and 2021, there wasn't much skepticism.

1259
01:18:54,600 --> 01:18:56,640
No, it was low money.

1260
01:18:56,640 --> 01:18:57,640
How do I get in?

1261
01:18:57,640 --> 01:18:59,760
It was a genuine FOMA.

1262
01:18:59,760 --> 01:19:03,840
And it was actually a very tough time because staying rational in those periods is difficult.

1263
01:19:03,840 --> 01:19:10,440
I mean, our marathon runners, they're not going to be run as fast as the sprinters.

1264
01:19:10,440 --> 01:19:14,840
And for a moment in the race, they might be looking like they're losing the race.

1265
01:19:14,840 --> 01:19:18,680
And ultimately, what we're sowing for in our portfolio is how do our companies go in the

1266
01:19:18,680 --> 01:19:19,680
tough times?

1267
01:19:19,680 --> 01:19:24,320
And what we have found, the tough times, or let's say 2022, which was a bit of a more

1268
01:19:24,320 --> 01:19:29,040
sharpened, tied in the belt period, like as you said, our companies did really well.

1269
01:19:29,040 --> 01:19:33,840
They cut costs, they pivoted, they're still very innovative, they're still creative.

1270
01:19:33,840 --> 01:19:40,800
And so I would say that same approach in terms of Magnificent 7 to Fabulous 4 is still very

1271
01:19:40,800 --> 01:19:44,600
valid for the overall stock market, US equities.

1272
01:19:44,600 --> 01:19:47,560
So China has had a tough period.

1273
01:19:47,560 --> 01:19:54,040
I would say also what is very under discussed, China has been in an earnings down cycle.

1274
01:19:54,040 --> 01:19:57,560
Companies on average in China are seeing negative earnings growth.

1275
01:19:57,560 --> 01:20:00,960
Now, they're probably getting closer to the end of that.

1276
01:20:00,960 --> 01:20:05,560
But that, I would argue, has been a bigger driver of the stock market returns.

1277
01:20:05,560 --> 01:20:10,680
When you think about Chinese state-owned enterprises, they've done fantastic.

1278
01:20:10,680 --> 01:20:13,580
Chinese state-owned enterprises are booming in China.

1279
01:20:13,580 --> 01:20:16,600
It's the private companies that are struggling.

1280
01:20:16,600 --> 01:20:19,320
But a lot of the state-owned companies are private.

1281
01:20:19,320 --> 01:20:21,180
You don't see their share prices.

1282
01:20:21,180 --> 01:20:23,920
If you did, they'd probably be doing quite well.

1283
01:20:23,920 --> 01:20:26,480
So it's always going to come back to earnings.

1284
01:20:26,480 --> 01:20:31,800
And I think this year is going to be the year where you do separate the winners and losers.

1285
01:20:31,800 --> 01:20:37,720
We are in a situation where some large-cap tech companies will continue to do well, that

1286
01:20:37,720 --> 01:20:39,140
have got the earnings momentum.

1287
01:20:39,140 --> 01:20:42,960
And then moving to that more middle part of the market that you talked about, there are

1288
01:20:42,960 --> 01:20:45,000
winners and losers emerging there as well.

1289
01:20:45,000 --> 01:20:52,200
I would say companies exposed to the domestic US economy broadly are doing better, because

1290
01:20:52,200 --> 01:20:55,440
the domestic US economy broadly is doing better.

1291
01:20:55,440 --> 01:20:57,760
You've got reshoring tailwinds.

1292
01:20:57,760 --> 01:21:02,480
You've still got a lot of stimulus running through the ecosystem.

1293
01:21:02,480 --> 01:21:05,640
You got this housing under supply.

1294
01:21:05,640 --> 01:21:07,360
Exposed there, you're doing well.

1295
01:21:07,360 --> 01:21:10,600
Non-exposed there, you're doing a bit poorly.

1296
01:21:10,600 --> 01:21:19,080
And a lot of those names in global luxury or beauty or in global alcohol have had a

1297
01:21:19,080 --> 01:21:20,080
little bit of that COVID.

1298
01:21:20,080 --> 01:21:23,080
But firstly, the COVID headwinds still kicking in.

1299
01:21:23,080 --> 01:21:27,280
We probably over-generated too much revenue in a short space of time.

1300
01:21:27,280 --> 01:21:32,240
And there's a bit of a kickback, probably excessive pricing power, they did.

1301
01:21:32,240 --> 01:21:35,040
And then China is very weak, economically speaking.

1302
01:21:35,040 --> 01:21:36,040
So that's hurt their earnings.

1303
01:21:36,040 --> 01:21:38,300
And it's always come down to earnings.

1304
01:21:38,300 --> 01:21:42,400
So we think in 2024, it's going to be very much an earnings story.

1305
01:21:42,400 --> 01:21:46,020
The winners and losers are going to be picked through that space.

1306
01:21:46,020 --> 01:21:50,040
So some of the sectors we've discussed, we think the semi-cycle is still very much intact.

1307
01:21:50,040 --> 01:21:54,760
The US housing cycle is very much intact.

1308
01:21:54,760 --> 01:22:00,920
Some domestically focused emerging market economies are very much intact.

1309
01:22:00,920 --> 01:22:05,560
And so whether the Fed cuts rates or not, that could act as a tailwind.

1310
01:22:05,560 --> 01:22:10,380
But ultimately, we think primarily earnings are going to drive the market or stocks.

1311
01:22:10,380 --> 01:22:12,080
And that's really where we're focused.

1312
01:22:12,080 --> 01:22:16,760
Yeah, with the election as well, I think RFK pointed out that for the past number of years,

1313
01:22:16,760 --> 01:22:19,720
people have just been taking bets on what the Fed's going to do.

1314
01:22:19,720 --> 01:22:24,160
I think I believe, I can't remember if it was the Russell or the Nasdaq, if you take

1315
01:22:24,160 --> 01:22:28,800
that chart and you actually put it up against a 10-year bond rate, it's literally got in

1316
01:22:28,800 --> 01:22:32,000
lockstep for the past, what is it, three or four years?

1317
01:22:32,000 --> 01:22:36,600
So if you literally just did nothing except for just follow the 10-year bond rate, you

1318
01:22:36,600 --> 01:22:39,240
would have caught the market near perfectly.

1319
01:22:39,240 --> 01:22:45,720
So why I really want to just dig into this particular topic is markets are all-time highs

1320
01:22:45,720 --> 01:22:46,720
again.

1321
01:22:46,720 --> 01:22:50,120
There was essentially a two or a three-spent economy happening.

1322
01:22:50,120 --> 01:22:55,000
I agree with you with the earnings and I do find that quite interesting.

1323
01:22:55,000 --> 01:22:59,760
But a number of these companies are driving this freight train.

1324
01:22:59,760 --> 01:23:05,240
And if like RFK and a lot of other people out there believe that these markets will

1325
01:23:05,240 --> 01:23:11,440
rise and fall purely based on what's happening with monetary policy and how that translates

1326
01:23:11,440 --> 01:23:18,720
to the bond market, what do you think is going to happen with these decisions and how big

1327
01:23:18,720 --> 01:23:20,000
an impact they're going to have?

1328
01:23:20,000 --> 01:23:21,800
And will we see volatility here?

1329
01:23:21,800 --> 01:23:27,160
Do you reckon this is going to break through or just you say to keep one eye on earnings

1330
01:23:27,160 --> 01:23:28,720
and then pray?

1331
01:23:28,720 --> 01:23:32,120
Yeah, I think a couple of things there.

1332
01:23:32,120 --> 01:23:37,520
Firstly, on the 10-year bond yields, what I would say is that there's a competition

1333
01:23:37,520 --> 01:23:38,680
for capital.

1334
01:23:38,680 --> 01:23:40,160
That's what it's really done.

1335
01:23:40,160 --> 01:23:47,200
It's made you reassess, I can earn, let's say, 5% risk-free at the short end and at

1336
01:23:47,200 --> 01:23:50,160
the long end, maybe 4.5%, 5%.

1337
01:23:50,160 --> 01:23:56,600
So earnings multiples or free cash flow yields have had to reset.

1338
01:23:56,600 --> 01:24:02,560
I think that's what a lot of 2022 was about, that the expectations had to reset and maybe

1339
01:24:02,560 --> 01:24:04,960
got too far and you had that relief rally.

1340
01:24:04,960 --> 01:24:07,320
That's your 100% right.

1341
01:24:07,320 --> 01:24:11,760
If we move higher in 10-year bond yields, let's say it moved to 5.5%, look, we don't

1342
01:24:11,760 --> 01:24:13,000
know.

1343
01:24:13,000 --> 01:24:19,960
It's going to absolutely make investors question multiples and free cash flow yields.

1344
01:24:19,960 --> 01:24:21,120
So what matters?

1345
01:24:21,120 --> 01:24:24,240
Free cash flow yields and multiples and earnings.

1346
01:24:24,240 --> 01:24:29,640
And so the interesting thing I would say is that Apple's probably lost maybe like half

1347
01:24:29,640 --> 01:24:34,400
a billion of market cap and the stock market has kept going up.

1348
01:24:34,400 --> 01:24:40,000
But there are other parts of the market that investors are rotating into.

1349
01:24:40,000 --> 01:24:41,000
The capital isn't...

1350
01:24:41,000 --> 01:24:48,240
Is that investors rotating into it or is that passive ETS like Vanguard, State Street, Black

1351
01:24:48,240 --> 01:24:54,240
Rock, it's just these super, what's called the 401Ks, just tossing money into this and

1352
01:24:54,240 --> 01:24:55,240
continuously buying up.

1353
01:24:55,240 --> 01:24:59,040
Is this smart investing or is this passive just beefing it all up and not looking at

1354
01:24:59,040 --> 01:25:00,040
the numbers?

1355
01:25:00,040 --> 01:25:06,000
Well, I think passive is obviously always invested and they're always rotating into

1356
01:25:06,000 --> 01:25:13,200
the large caps and that's obviously a natural support for the large cap stocks.

1357
01:25:13,200 --> 01:25:19,040
What I would say is if you sort of looked at the past, if Apple had a good drawdown,

1358
01:25:19,040 --> 01:25:20,840
it really weighed on the market.

1359
01:25:20,840 --> 01:25:28,520
It was hard to break out to new highs with the largest company in the world having headwinds.

1360
01:25:28,520 --> 01:25:35,640
So I would say we think the earnings trajectory for a lot of the companies in the US are still

1361
01:25:35,640 --> 01:25:40,360
very solid and therefore it gives the stock market support.

1362
01:25:40,360 --> 01:25:43,480
Notwithstanding, multiples can come lower.

1363
01:25:43,480 --> 01:25:50,120
You got to absolutely think about where the 10 years going because it will reset valuations

1364
01:25:50,120 --> 01:25:54,080
or people will demand a higher compensation.

1365
01:25:54,080 --> 01:25:59,160
If you look at Microsoft today at a 3% to 3.3% free cash flow yield, that's okay as

1366
01:25:59,160 --> 01:26:03,400
long as we have high level of confidence on that free cash flow yield growing and I think

1367
01:26:03,400 --> 01:26:04,400
investors do.

1368
01:26:04,400 --> 01:26:13,200
But when the 10 year bond yield gets to 6%, we may demand 4% free cash flow yield compensation.

1369
01:26:13,200 --> 01:26:16,840
So there is always that in the back of the mind for investors.

1370
01:26:16,840 --> 01:26:20,440
Where 10 years are going, I mean, your guess will be as good as mine.

1371
01:26:20,440 --> 01:26:26,000
I think more broadly that the US economy is in good shape.

1372
01:26:26,000 --> 01:26:32,120
Household debt to GDP is very low in the low 70s.

1373
01:26:32,120 --> 01:26:39,000
And there's a fiscal tailwind and there is reshoring tailwinds.

1374
01:26:39,000 --> 01:26:45,020
So I think ultimately the Fed is very obsessed in not tipping the country into recession.

1375
01:26:45,020 --> 01:26:51,800
So I think it's like climbing the wall of worry, I think is the kind of market we're

1376
01:26:51,800 --> 01:26:52,800
in.

1377
01:26:52,800 --> 01:26:56,080
We always have something to worry about.

1378
01:26:56,080 --> 01:27:01,500
But ultimately, businesses as we're seeing, they go on with their day-to-day jobs.

1379
01:27:01,500 --> 01:27:05,080
They go target the opportunities in front of them.

1380
01:27:05,080 --> 01:27:09,720
And we don't see a financial crisis risk sort of ahead for the US.

1381
01:27:09,720 --> 01:27:14,560
I would say the big market we were worried about potentially was China.

1382
01:27:14,560 --> 01:27:19,200
But being the closed economy China is and the capital surplus nation that it is, it's

1383
01:27:19,200 --> 01:27:21,640
able to plug holes very easily.

1384
01:27:21,640 --> 01:27:24,440
That doesn't mean the housing markets are fine and dandy.

1385
01:27:24,440 --> 01:27:29,680
There's about 30 million overbuilt homes, which is quite a lot.

1386
01:27:29,680 --> 01:27:30,680
But they will work through it.

1387
01:27:30,680 --> 01:27:34,680
It does mean a bit of lower growth for a few years.

1388
01:27:34,680 --> 01:27:39,920
But that was probably one big area that raised a bit of risk was how China was going to handle

1389
01:27:39,920 --> 01:27:40,960
with property market.

1390
01:27:40,960 --> 01:27:44,640
Because for a moment, the government was a little bit behind the curve, and that's kind

1391
01:27:44,640 --> 01:27:47,720
of where a lot of policy errors can happen.

1392
01:27:47,720 --> 01:27:54,720
I think the Fed is probably, my estimates would be they are overall happy with the way

1393
01:27:54,720 --> 01:27:58,760
the economy is going, got one eye on inflation and one eye on unemployment.

1394
01:27:58,760 --> 01:28:04,400
And the eye on unemployment is probably more what they're watching.

1395
01:28:04,400 --> 01:28:14,320
Yes, it's interesting to watch and look at allocating money into especially, I think

1396
01:28:14,320 --> 01:28:20,160
what I'm starting to hear a bit of chatter about, you know, when something pops up and

1397
01:28:20,160 --> 01:28:23,680
then you keep kind of seeing it and then you kind of can't unsee it.

1398
01:28:23,680 --> 01:28:27,360
In particular, it was the article regarding Boeing.

1399
01:28:27,360 --> 01:28:34,000
Don't get too political in here, but you know, I really don't care to it in all honesty.

1400
01:28:34,000 --> 01:28:36,720
I just I believe wholeheartedly if you go work, you go broke.

1401
01:28:36,720 --> 01:28:39,400
Look at having a Disney and a number of other entities.

1402
01:28:39,400 --> 01:28:43,240
But I just there's a particular phrase.

1403
01:28:43,240 --> 01:28:44,240
Maybe I've been late.

1404
01:28:44,240 --> 01:28:48,880
You know, with the election on all the RFK stuff's been popping up on my feed and the

1405
01:28:48,880 --> 01:28:52,480
guy's fascinating and his litigation career is a smart cookie.

1406
01:28:52,480 --> 01:28:53,480
And then he says things.

1407
01:28:53,480 --> 01:28:55,120
It just makes you question.

1408
01:28:55,120 --> 01:28:59,080
He pulls that veil back a little bit in the room and then you have a little look and you

1409
01:28:59,080 --> 01:29:00,720
go, what does he mean by that?

1410
01:29:00,720 --> 01:29:03,560
One thing he's been discussing, he mentioned something like 20 years ago.

1411
01:29:03,560 --> 01:29:09,120
I want to go into the politics, but fast forward 20 years, apparently a lot of the rhetoric

1412
01:29:09,120 --> 01:29:14,040
which we're hearing running around where you're getting internal arguments with civilizations,

1413
01:29:14,040 --> 01:29:16,000
you know, should you do this?

1414
01:29:16,000 --> 01:29:17,000
Should you do that?

1415
01:29:17,000 --> 01:29:18,840
You know, ESG, you know, what's good for the environment?

1416
01:29:18,840 --> 01:29:22,600
You know, why is there one rules for the West and another set of rules for the East?

1417
01:29:22,600 --> 01:29:23,600
Right.

1418
01:29:23,600 --> 01:29:24,600
You know, you have to do this here.

1419
01:29:24,600 --> 01:29:26,400
Otherwise, you're a pariah in society.

1420
01:29:26,400 --> 01:29:27,760
Meanwhile, they don't care over there.

1421
01:29:27,760 --> 01:29:28,760
You know what I mean?

1422
01:29:28,760 --> 01:29:30,040
Like tick tock, tick tock.

1423
01:29:30,040 --> 01:29:32,200
They push stuff to make our children dumber.

1424
01:29:32,200 --> 01:29:36,040
Meanwhile, they're advocating, you know, how to solve complex mathematical equations so

1425
01:29:36,040 --> 01:29:37,840
the kids can go to the moon over in China.

1426
01:29:37,840 --> 01:29:38,840
You know what I mean?

1427
01:29:38,840 --> 01:29:46,000
It is just, you know, I think the exact phrase was they're trying to degrowth the US.

1428
01:29:46,000 --> 01:29:50,640
I'm starting to hear that run around a bit and send the sunset the US so the East can

1429
01:29:50,640 --> 01:29:51,640
rise.

1430
01:29:51,640 --> 01:29:52,640
I don't know.

1431
01:29:52,640 --> 01:29:53,640
I'm just curious.

1432
01:29:53,640 --> 01:29:57,880
Have you heard that phrase run around at all?

1433
01:29:57,880 --> 01:30:06,240
So I would say that we've not in my investing career.

1434
01:30:06,240 --> 01:30:12,400
It's only been one really game in town or one superpower and the world order really

1435
01:30:12,400 --> 01:30:15,000
circled around it.

1436
01:30:15,000 --> 01:30:20,760
So the entry, sorry, I'm going a bit back in time, but the entry of China into WTO,

1437
01:30:20,760 --> 01:30:26,280
like I think this was one of the most largest watershed moments for the global economy because

1438
01:30:26,280 --> 01:30:32,840
the amount of investment, foreign direct investment, went into China when it was into the trillions

1439
01:30:32,840 --> 01:30:38,480
and the whole world's manufacturing basically sourced into China.

1440
01:30:38,480 --> 01:30:43,680
It's amazing and 500, 600 million people were lifted out of poverty.

1441
01:30:43,680 --> 01:30:49,440
So today we do have a genuine rivalry between these two countries and I would say it's a

1442
01:30:49,440 --> 01:30:52,040
Cold War.

1443
01:30:52,040 --> 01:30:54,240
It's definitely tensions.

1444
01:30:54,240 --> 01:31:00,360
I would say it comes from these countries having things more in similarity than different.

1445
01:31:00,360 --> 01:31:03,560
I think they're more similar in different China and the US.

1446
01:31:03,560 --> 01:31:06,360
I think they both want good things for their citizens.

1447
01:31:06,360 --> 01:31:08,800
They want to raise living standards.

1448
01:31:08,800 --> 01:31:13,680
There is a lot of entrepreneurship inside both those countries.

1449
01:31:13,680 --> 01:31:21,040
They are very proud nations, very nationalistic countries and ultimately they want to build

1450
01:31:21,040 --> 01:31:25,440
a sphere of influences and that's not going to change.

1451
01:31:25,440 --> 01:31:27,160
I can't see that changing.

1452
01:31:27,160 --> 01:31:36,720
We've sort of like Trump's policies in his last, he kind of unveiled the truth and the

1453
01:31:36,720 --> 01:31:43,640
tensions that were always simmering, but they came to the surface, whether in domestic lead

1454
01:31:43,640 --> 01:31:49,040
America where people felt like their jobs were being outsourced to China, but also maybe

1455
01:31:49,040 --> 01:31:53,960
some of the advantages China was taking within WTO were exposed as well.

1456
01:31:53,960 --> 01:31:56,720
Now the rivalry has just gone to the next level.

1457
01:31:56,720 --> 01:32:05,880
So the rivalry today is now about who can get ahead in artificial intelligence and the

1458
01:32:05,880 --> 01:32:14,240
United States is not backing down in its restrictions and its limitations and all the sanctions

1459
01:32:14,240 --> 01:32:15,760
it's imposing.

1460
01:32:15,760 --> 01:32:24,480
They do definitely want to limit China's development in AI because to your point earlier on, China

1461
01:32:24,480 --> 01:32:26,880
was probably leading the way.

1462
01:32:26,880 --> 01:32:37,560
I met TikTok in 2019 on a trip to China and what struck me was how much GPUs they were

1463
01:32:37,560 --> 01:32:47,240
applying back then and they were already building the whole algorithm on machine learning and

1464
01:32:47,240 --> 01:32:49,840
to just get much higher engagement.

1465
01:32:49,840 --> 01:32:53,320
And so it really was a wake up call for American corporates.

1466
01:32:53,320 --> 01:32:58,080
When TikTok came to the West, Facebook was probably behind and then it forced a huge

1467
01:32:58,080 --> 01:33:04,840
investment cycle for Metta, but this sort of rivalry, it's just not going to go away

1468
01:33:04,840 --> 01:33:11,160
and the risk is obviously more nationalistic sentiment brew in America and more nationalistic

1469
01:33:11,160 --> 01:33:13,880
sentiment brewing in China.

1470
01:33:13,880 --> 01:33:18,720
The way we think the risks are going to happen is that you said deep growth, I think there's

1471
01:33:18,720 --> 01:33:23,040
an element of that that's going to happen with US corporates in China.

1472
01:33:23,040 --> 01:33:27,240
So for example, Apple and we talked about Apple having a tough time this year, but it

1473
01:33:27,240 --> 01:33:33,400
looks like in China, iPhone sales are down 30% year to day for Apple, which is significant

1474
01:33:33,400 --> 01:33:36,560
and there is a preference to domestic brands.

1475
01:33:36,560 --> 01:33:43,120
Nike, which is about a third of its business in China, relied on China for its growth driver.

1476
01:33:43,120 --> 01:33:44,120
There is a move towards national.

1477
01:33:44,120 --> 01:33:47,760
And their child workers.

1478
01:33:47,760 --> 01:33:50,440
And as a result, there is this way.

1479
01:33:50,440 --> 01:33:56,520
Now, coming to ultimately incentives, incentives matter.

1480
01:33:56,520 --> 01:34:03,320
The American capitalistic system is incentivized to solve problems, incentivize a capitalist

1481
01:34:03,320 --> 01:34:04,320
system, solve a problem.

1482
01:34:04,320 --> 01:34:06,640
There's a huge payoff.

1483
01:34:06,640 --> 01:34:09,440
We don't see that changing anytime soon.

1484
01:34:09,440 --> 01:34:12,600
The institutions are fairly strong in the United States.

1485
01:34:12,600 --> 01:34:14,200
We can debate how strong.

1486
01:34:14,200 --> 01:34:17,160
I think the institutions are very strong in India as well.

1487
01:34:17,160 --> 01:34:23,360
Rule of law and all these things now matter much more today in global investing than they've

1488
01:34:23,360 --> 01:34:26,040
ever mattered in the past.

1489
01:34:26,040 --> 01:34:31,480
And so as a result, China's got economic weakness that they've got to deal with, which they

1490
01:34:31,480 --> 01:34:33,680
are not going to deal with at all.

1491
01:34:33,680 --> 01:34:38,720
But that tension and that cold war, it's not going to go away.

1492
01:34:38,720 --> 01:34:42,120
And we started this conversation with TSMC.

1493
01:34:42,120 --> 01:34:45,120
That's like flashpoint is Taiwan.

1494
01:34:45,120 --> 01:34:51,760
And TSMC, which is enabling all this amazing technology, sits a few hundred kilometers

1495
01:34:51,760 --> 01:34:54,280
off the coast of China.

1496
01:34:54,280 --> 01:35:01,360
And so it's always going to be a very tense moment in world politics if Taiwan is politicized.

1497
01:35:01,360 --> 01:35:03,320
Thankfully, it hasn't been.

1498
01:35:03,320 --> 01:35:07,040
Thankfully, there's been calmer things to prevail.

1499
01:35:07,040 --> 01:35:11,880
But I would say the East or China, it's going on a different path.

1500
01:35:11,880 --> 01:35:13,120
It's becoming more insular.

1501
01:35:13,120 --> 01:35:17,720
Now, that does create opportunities in the domestic market.

1502
01:35:17,720 --> 01:35:22,040
And the West is also becoming, the US is becoming more domestically insular.

1503
01:35:22,040 --> 01:35:26,560
And in a way, it requires a lot of investment.

1504
01:35:26,560 --> 01:35:32,520
So it creates investing opportunities, which in a way is the way we're thinking about it.

1505
01:35:32,520 --> 01:35:34,520
Well, it's a new war out here these days.

1506
01:35:34,520 --> 01:35:35,880
You really don't have to fire a shot.

1507
01:35:35,880 --> 01:35:39,360
You just go buy a renois' land.

1508
01:35:39,360 --> 01:35:42,600
I don't know what's happened with Biden, but the fact that he's kept those borders open

1509
01:35:42,600 --> 01:35:47,720
and Texas has been told not to, and there's a huge number of military aid.

1510
01:35:47,720 --> 01:35:48,960
There's just so much happening.

1511
01:35:48,960 --> 01:35:52,000
I reckon there's a war being, there's obviously a war being fought.

1512
01:35:52,000 --> 01:35:53,400
People are being moved.

1513
01:35:53,400 --> 01:36:03,440
Why I'm finding this phrase degrowth so interesting is there's one set of rules for the West

1514
01:36:03,440 --> 01:36:05,960
and there's one set of rules for the East.

1515
01:36:05,960 --> 01:36:09,640
And the West must do it for moral and ethical reasons, which are great.

1516
01:36:09,640 --> 01:36:14,360
But when, as you said, your biggest competitor and you're in a cold war, doesn't have to

1517
01:36:14,360 --> 01:36:17,240
do it, it just makes you question everything.

1518
01:36:17,240 --> 01:36:18,960
What's really going on?

1519
01:36:18,960 --> 01:36:24,560
And then as investors, we're the stewards of other people's capital, trying to make

1520
01:36:24,560 --> 01:36:31,400
investments and hopefully put them in an area that meets their ethical and moral concerns.

1521
01:36:31,400 --> 01:36:37,800
But also you're not going to get a war blown out that sees a lot of financial ruin at the

1522
01:36:37,800 --> 01:36:38,800
same time.

1523
01:36:38,800 --> 01:36:41,680
Or on the other side, it might create a huge bit of growth.

1524
01:36:41,680 --> 01:36:46,200
But the one thing, what's the old phrase?

1525
01:36:46,200 --> 01:36:48,880
A dead man doesn't pay his taxes.

1526
01:36:48,880 --> 01:36:51,520
So a dead man doesn't pay his debts.

1527
01:36:51,520 --> 01:36:55,920
So it will benefit no one if TSM ends up in rubble.

1528
01:36:55,920 --> 01:36:58,960
No one's going to make any money.

1529
01:36:58,960 --> 01:37:05,760
That's ultimately why this cold war will have very big stalemates.

1530
01:37:05,760 --> 01:37:15,080
Now that doesn't mean there's a push towards domestic goods in China away from Western

1531
01:37:15,080 --> 01:37:16,080
goods.

1532
01:37:16,080 --> 01:37:21,480
And the same happening in the US, like TikTok being politicized, it's obvious, right?

1533
01:37:21,480 --> 01:37:25,240
Facebook has got reels.

1534
01:37:25,240 --> 01:37:31,000
And that's as an addictive product as TikTok might be.

1535
01:37:31,000 --> 01:37:38,360
But ultimately, I would say the rules, there are rules for the East that don't apply to

1536
01:37:38,360 --> 01:37:39,360
the West.

1537
01:37:39,360 --> 01:37:45,760
For example, the Chinese internet market is locked out to Western politicians.

1538
01:37:45,760 --> 01:37:52,080
But in a way, it's important because it's a control of information.

1539
01:37:52,080 --> 01:37:55,760
If your domestic internet companies are Chinese, it's easier to control them.

1540
01:37:55,760 --> 01:37:59,600
If your internet companies are Western, it's harder to control.

1541
01:37:59,600 --> 01:38:02,520
So ultimately, what does it boil down to?

1542
01:38:02,520 --> 01:38:04,960
It boils down to incentives.

1543
01:38:04,960 --> 01:38:09,240
The Chinese Communist Party's incentive is to stay in power.

1544
01:38:09,240 --> 01:38:17,720
Whereas the systems in the West, you don't have the forever presidents in the West.

1545
01:38:17,720 --> 01:38:22,840
You can have long serving prime ministers in certain countries, but eventually, there

1546
01:38:22,840 --> 01:38:27,200
is an opportunity to vote someone else in who's got some fresh ideas.

1547
01:38:27,200 --> 01:38:31,720
The Communist Party's incentive is also to raise living standards.

1548
01:38:31,720 --> 01:38:38,020
Because ultimately, the reality is we all want better things for our children.

1549
01:38:38,020 --> 01:38:42,660
And if your country is stagnating, ultimately, you do get frustrated.

1550
01:38:42,660 --> 01:38:47,880
And so the Chinese Communist Party's done a great job in living standards.

1551
01:38:47,880 --> 01:38:49,760
We think they'll still do that.

1552
01:38:49,760 --> 01:38:54,480
But they would just do it from a much more domestically focused, how do we do it to benefit

1553
01:38:54,480 --> 01:38:59,600
China and always build this sphere of influence.

1554
01:38:59,600 --> 01:39:03,560
And of course, we talked about resources earlier.

1555
01:39:03,560 --> 01:39:08,640
China is very strategic when it comes to resource management.

1556
01:39:08,640 --> 01:39:12,640
They do take 10-year views.

1557
01:39:12,640 --> 01:39:19,160
And their batteries, EVs are very dominant in China.

1558
01:39:19,160 --> 01:39:20,820
Electric vehicles are very dominant in China.

1559
01:39:20,820 --> 01:39:22,560
But it's not just the electric vehicle.

1560
01:39:22,560 --> 01:39:26,340
It's the whole battery, the whole supply chain has been built out in China.

1561
01:39:26,340 --> 01:39:27,680
That doesn't happen overnight.

1562
01:39:27,680 --> 01:39:30,120
That's taken a decade plus to build.

1563
01:39:30,120 --> 01:39:36,120
And so the battery companies in China, whether it's CATL or BYD, they've got offtake agreements

1564
01:39:36,120 --> 01:39:42,120
with miners in Africa or in South America for guaranteed offtake.

1565
01:39:42,120 --> 01:39:45,240
And they've effectively secured a lot of supply chain.

1566
01:39:45,240 --> 01:39:48,240
That BYD business is a phenomenal business they build.

1567
01:39:48,240 --> 01:39:51,440
And look, I'll completely disclose.

1568
01:39:51,440 --> 01:39:56,560
I'm running a Huawei laptop.

1569
01:39:56,560 --> 01:39:59,560
But the reason being is I had it for a number of years ago.

1570
01:39:59,560 --> 01:40:05,760
It is, in my opinion, the best tech in the market for half the price.

1571
01:40:05,760 --> 01:40:08,640
Maybe that's just the frugal investor nature in me.

1572
01:40:08,640 --> 01:40:14,600
And look, my information, I'm not essentially anywhere in a government level that they'll

1573
01:40:14,600 --> 01:40:16,560
be targeting my particular laptops.

1574
01:40:16,560 --> 01:40:20,560
There's no difference between Google and them having my information.

1575
01:40:20,560 --> 01:40:24,560
And everything's backed up on third-party software for privacy reasons anyway.

1576
01:40:24,560 --> 01:40:26,080
So no one can get after it anyway.

1577
01:40:26,080 --> 01:40:32,880
I just find it very, very interesting that they're building the best tech in the market.

1578
01:40:32,880 --> 01:40:38,380
But meanwhile, we've been not allowed to access it for Cold War reasons.

1579
01:40:38,380 --> 01:40:42,400
And then hence, we have to go buy other technology when the best tech being built.

1580
01:40:42,400 --> 01:40:48,000
Listen, the memory companies, the TSM, where they're being built, they're being built in

1581
01:40:48,000 --> 01:40:49,000
Asia.

1582
01:40:49,000 --> 01:40:50,000
Yes.

1583
01:40:50,000 --> 01:40:51,000
Oh, absolutely.

1584
01:40:51,000 --> 01:40:52,000
Look, absolutely.

1585
01:40:52,000 --> 01:40:57,840
I get it, but I understand why how I was banned in Australia from building out.

1586
01:40:57,840 --> 01:40:59,440
That makes a lot of sense.

1587
01:40:59,440 --> 01:41:04,600
But it also doesn't make sense that other parts of government are allowed to go buy

1588
01:41:04,600 --> 01:41:08,000
farmland around military installations in the US.

1589
01:41:08,000 --> 01:41:09,520
It just makes no sense.

1590
01:41:09,520 --> 01:41:12,400
It's like double standards across the board.

1591
01:41:12,400 --> 01:41:13,400
No, absolutely.

1592
01:41:13,400 --> 01:41:20,560
Look, that's the global world order.

1593
01:41:20,560 --> 01:41:26,680
Every nation will ultimately set its own rules and agenda that will suit itself.

1594
01:41:26,680 --> 01:41:30,720
There's a lot of protectionist policies still happening in big emerging markets.

1595
01:41:30,720 --> 01:41:39,280
I mean, the European Union has incredibly large protectionist policies in agriculture

1596
01:41:39,280 --> 01:41:41,520
and locks out a lot of other countries.

1597
01:41:41,520 --> 01:41:47,420
Ultimately, these groups can build a lot of buying power if their economies are very large

1598
01:41:47,420 --> 01:41:52,280
or if they join a consortium.

1599
01:41:52,280 --> 01:41:59,720
China domestic market is big and Western companies have benefited from that for 10, 20 years.

1600
01:41:59,720 --> 01:42:05,040
So in a way, some of the biggest lobbyists in Washington for China are American companies.

1601
01:42:05,040 --> 01:42:06,040
Yeah.

1602
01:42:06,040 --> 01:42:11,040
And then their technology completely surpassed anything that the West thought that was possible.

1603
01:42:11,040 --> 01:42:13,240
They just took it and ran with it.

1604
01:42:13,240 --> 01:42:14,240
Oh, absolutely.

1605
01:42:14,240 --> 01:42:20,480
The level of innovation and entrepreneurship in China is mind boggling.

1606
01:42:20,480 --> 01:42:22,600
But I think it has woken up the US.

1607
01:42:22,600 --> 01:42:27,440
I think the US has realized that they were falling behind on some aspects of that.

1608
01:42:27,440 --> 01:42:32,920
So, look, healthy competition in the global economy is not a terrible thing.

1609
01:42:32,920 --> 01:42:38,400
So besides the holdings which you have in the portfolio, is there any other sectors

1610
01:42:38,400 --> 01:42:41,060
you're keeping a close eye on?

1611
01:42:41,060 --> 01:42:44,920
If that comes back to fair value, you'd get jumping in?

1612
01:42:44,920 --> 01:42:45,920
Yeah.

1613
01:42:45,920 --> 01:42:51,160
So the way we run our process is we've got our 20 to 30 stocks, our marathon runners,

1614
01:42:51,160 --> 01:42:58,140
and we keep an inventory of another 50 to 60 names, which we call our bench.

1615
01:42:58,140 --> 01:43:04,500
And I think it's important to have an inventory because ultimately, if you think about a company

1616
01:43:04,500 --> 01:43:11,000
that's currently owned, the thesis has changed or something's changed the narrative or the

1617
01:43:11,000 --> 01:43:13,480
growth isn't as good or the quality is not good.

1618
01:43:13,480 --> 01:43:19,000
You want to be able to substitute it off and on very seamlessly.

1619
01:43:19,000 --> 01:43:23,720
Also, you want healthy competition between your inventory and the actual portfolio.

1620
01:43:23,720 --> 01:43:26,280
So they're always fighting to get in.

1621
01:43:26,280 --> 01:43:33,120
And we create that structure in our business where we're responsible for stocks, but the

1622
01:43:33,120 --> 01:43:37,480
way we're remunerated or compensated is not how our individual stocks go, but how the

1623
01:43:37,480 --> 01:43:38,480
fund goes.

1624
01:43:38,480 --> 01:43:39,480
That's very important.

1625
01:43:39,480 --> 01:43:43,900
And we're never going to push it's my idea versus Murdoch's idea.

1626
01:43:43,900 --> 01:43:46,060
It's the best ideas only.

1627
01:43:46,060 --> 01:43:50,040
And so in our inventory, I would say we've got a few interesting names.

1628
01:43:50,040 --> 01:43:55,000
They're probably companies, a bit mentioned in that global beauty luxury space that have

1629
01:43:55,000 --> 01:43:56,460
fallen off the radar.

1630
01:43:56,460 --> 01:44:00,060
There are some interesting emerging market consumer companies that have fallen off the

1631
01:44:00,060 --> 01:44:04,220
radar largely because of China.

1632
01:44:04,220 --> 01:44:06,040
And then there's domestic American companies.

1633
01:44:06,040 --> 01:44:10,400
That's the other part of the market we're finding interesting is that when you sort

1634
01:44:10,400 --> 01:44:15,560
of look to middle American companies, the multiples come down quite a bit.

1635
01:44:15,560 --> 01:44:22,400
The headline PE might be 20, but the more middle American companies, maybe 15 times.

1636
01:44:22,400 --> 01:44:25,440
Very well exposed to interesting structural trends.

1637
01:44:25,440 --> 01:44:31,680
And it's just a matter of watching and waiting to see if an opportunity comes to buy and

1638
01:44:31,680 --> 01:44:37,440
can substitute out from one of our current portfolio holdings.

1639
01:44:37,440 --> 01:44:38,440
Yeah.

1640
01:44:38,440 --> 01:44:44,520
It's the man is the Manchester city strategy.

1641
01:44:44,520 --> 01:44:48,000
Essentially have two teams and then we, you know, or three teams internally.

1642
01:44:48,000 --> 01:44:52,880
And then like last year, they won the treble, you know, it's the way forward.

1643
01:44:52,880 --> 01:44:56,440
Well, if you've got all the money, you can definitely make that happen.

1644
01:44:56,440 --> 01:45:00,280
So what I like to finish on is what keeps you up at night and what gets you out of bed

1645
01:45:00,280 --> 01:45:03,120
in the morning?

1646
01:45:03,120 --> 01:45:05,640
So what keeps me up at night?

1647
01:45:05,640 --> 01:45:10,040
Still my kids, they're still relatively young, eight and five.

1648
01:45:10,040 --> 01:45:17,360
So every now and then they have a bad dream and they want mommy or daddy to, you know,

1649
01:45:17,360 --> 01:45:21,080
tuck them in, make them feel safe.

1650
01:45:21,080 --> 01:45:24,820
That's always, you know, that's always a tough makes sleeping a bit tough, but it's always

1651
01:45:24,820 --> 01:45:25,820
very rewarding.

1652
01:45:25,820 --> 01:45:28,520
Look, what keeps me up?

1653
01:45:28,520 --> 01:45:35,880
Look, I really do enjoy, you know, what we do, you know, we're in this business of money

1654
01:45:35,880 --> 01:45:40,760
management and it's going back to, you know, that book I read about from Barton Biggs,

1655
01:45:40,760 --> 01:45:45,440
Hedgehogging, you know, the you've just got to really find this.

1656
01:45:45,440 --> 01:45:48,000
I know it's a bit cliche.

1657
01:45:48,000 --> 01:45:49,000
It's a passion.

1658
01:45:49,000 --> 01:45:50,000
It's a hobby.

1659
01:45:50,000 --> 01:45:56,280
But in a way, you know, you've got to have elements of that in this role because it's

1660
01:45:56,280 --> 01:45:58,640
not always not always going to be easy.

1661
01:45:58,640 --> 01:46:00,940
Markets don't always go up in a straight line.

1662
01:46:00,940 --> 01:46:01,940
You do have shocks.

1663
01:46:01,940 --> 01:46:05,360
You do have periods where 10 year bond yields break out and creates a bit of a shock in

1664
01:46:05,360 --> 01:46:07,040
the market.

1665
01:46:07,040 --> 01:46:12,880
And you know, it creates, you know, big opportunities to buy things.

1666
01:46:12,880 --> 01:46:18,700
And having rationality and calmness and focus is very important.

1667
01:46:18,700 --> 01:46:21,480
And you can and you can do it from a position of strength.

1668
01:46:21,480 --> 01:46:25,280
What you're doing is, you know, you're really passionate about what you're doing and that

1669
01:46:25,280 --> 01:46:29,520
volatility doesn't stress you, but volatility is actually your friend.

1670
01:46:29,520 --> 01:46:34,480
And that's been like the big learning for me over the time that, you know, you know,

1671
01:46:34,480 --> 01:46:39,240
the big part of our job is just to fight our own biases.

1672
01:46:39,240 --> 01:46:42,880
We spend so much time doing a lot of analysis on businesses and stocks.

1673
01:46:42,880 --> 01:46:49,080
And we spend a lot of we spend very little time on self-reflection.

1674
01:46:49,080 --> 01:46:50,620
What are my biases?

1675
01:46:50,620 --> 01:46:52,360
What do I tend to gravitate towards?

1676
01:46:52,360 --> 01:46:55,400
What do I do in more of your euphoric times?

1677
01:46:55,400 --> 01:46:57,820
What I do more in pessimistic times?

1678
01:46:57,820 --> 01:47:01,000
And then just have that honest self-reflection.

1679
01:47:01,000 --> 01:47:07,400
And you know, I over time, I felt like, you know, things like yoga and meditation would

1680
01:47:07,400 --> 01:47:08,400
help.

1681
01:47:08,400 --> 01:47:11,240
I would say they definitely help.

1682
01:47:11,240 --> 01:47:16,160
Meditation definitely creates a level of calmness.

1683
01:47:16,160 --> 01:47:17,160
But it's not the answer.

1684
01:47:17,160 --> 01:47:20,840
The real answer is you've got to really be honest with yourself.

1685
01:47:20,840 --> 01:47:25,960
You just know that ultimately, it's yourself you're lying to.

1686
01:47:25,960 --> 01:47:32,100
And you've got to be able to acknowledge these are my weaknesses and then understand how

1687
01:47:32,100 --> 01:47:35,460
to then make them strengths.

1688
01:47:35,460 --> 01:47:41,920
So for me, it does, I do spend a lot of time listening to different type of psychology

1689
01:47:41,920 --> 01:47:48,520
book, reading different type of psychology books, or just gaining perspectives from people

1690
01:47:48,520 --> 01:47:52,840
who've done interesting things and what happened during those tough times and how did they

1691
01:47:52,840 --> 01:47:53,840
persevere.

1692
01:47:53,840 --> 01:47:58,160
Because it is a long term, you know, what we're trying to do is we're trying to make

1693
01:47:58,160 --> 01:47:59,160
long term decisions.

1694
01:47:59,160 --> 01:48:01,940
And there can be a lot of noise along the way.

1695
01:48:01,940 --> 01:48:05,760
And you got to stay in it's just, you know, remembering to stay the course and having

1696
01:48:05,760 --> 01:48:09,480
that patience and just fighting your emotions along the way.

1697
01:48:09,480 --> 01:48:12,080
Couldn't have said it better myself.

1698
01:48:12,080 --> 01:48:14,320
Well, Sonny, it's great having you on.

1699
01:48:14,320 --> 01:48:19,960
And I really appreciate your insights you shared on what you've been covering and what's

1700
01:48:19,960 --> 01:48:20,960
happening at Black Waddle.

1701
01:48:20,960 --> 01:48:21,960
Thanks, Murdoch.

1702
01:48:21,960 --> 01:48:22,960
Thank you for having me.

1703
01:48:22,960 --> 01:48:23,960
Fantastic.

1704
01:48:23,960 --> 01:48:24,960
All right, Sonny, take it easy.

1705
01:48:24,960 --> 01:48:37,800
Have a great day.

1706
01:48:37,800 --> 01:48:41,760
Any views expressed in this recording do not represent the view of any other third party

1707
01:48:41,760 --> 01:48:44,440
and other sole personal opinions of the speaker.

1708
01:48:44,440 --> 01:48:48,440
Any reference to financial product does not constitute advice or recommendation and before

1709
01:48:48,440 --> 01:48:52,400
any action you should seek proper advice from your financial professional.

1710
01:48:52,400 --> 01:48:59,240
Australian listeners should head to www.moneysmart.gov.au to find more information on obtaining financial

1711
01:48:59,240 --> 01:49:00,240
advice.

1712
01:49:00,240 --> 01:49:11,880
To get in touch with York head to our website www.yorkwelf.com.au.